Luxembourg fund industry hits record AUM in 2012

Figures published today by the Association of the Luxembourg Fund Industry (Alfi), show that assets of Luxembourg domiciled funds hit €2.383trn at the end of 2012, an increase of 13.7% over the previous year.

Net sales through the year were €123.1bn. At the end of 2012 there were some 3,841 investment funds domiciled in Luxembourg, with 43,836 share classes.

Marc Saluzzi, chairman of Alfi, said the development was welcomed in Luxembourg, where the investment fund sector accounts for 8% of GDP in the jurisdiction, and 10% of tax revenue.

“Assets under management have not only grown in Luxembourg, but in Europe as a whole, partly due to increasing market values, but also thanks to significant new inflows into investment funds. We are pleased with this return of confidence in investment funds.”

There is also a need to improve retail investor interest in funds across Europe by providing a cost effective and transparent environment, and to help those who may have been shocked by developments in 2008-9, Saluzzi said.

The links between long term savings and funds at the level of the retail investor are better understood in a market such as the US because of the “401k” legislation in place there. The link is less apparent in Europe. Meanwhile pension systems are developing in emerging markets that could open up other opportunities for Luxembourg based funds, he said.

Saluzzi said that there were high hopes the industry would also have a good 2013 on the regulatory front. The hope is that there will be no renewed increase in the pace of regulatory changes imposed on the industry.

The immediate regulatory priority for Alfi is dealing with the AIFMD. Saluzzi noted that 20% of assets in Luxembourg are in alternatives, with 10% in the three main classes of hedge funds, private equity and real estate. Luxembourg is looking to double the assets in these three main areas over the next five years.
Other key areas of regulation are Ucits V and Fatca.

Next developments in Ucits may depend on the Irish presidency of the EU, which it holds for the first half of 2013. Alfi’s response to Fatca will depend on its technical analysis of the final rules published recently, particulary as it relates to the question of which model Intergovernmental Agreement Luxembourg may sign with the US for sharing of information.

Further issues to consider include proposed rules covering derivatives trading, more discussion around Ucits VI, and the impact of the European financial transaction tax agreement on funds.

Overall, however, the pipeline of new regulations is looking stable, with little sign currently that unexpected regulations could be proposed. The industry itself feels that there is a sufficient amount of new regulation in place. Meanwhile, there is an argument that it is more in customers’ interests if managers can spend less time on regulation and more time concentrating on their operations and expanding their businesses, Saluzzi said.

Regulations are not just a concern for European managers. Saluzzi noted comments to Alfi at roadshows outside Europe, which suggest that regulators and policymakers in those jurisdictions are also concerned about what is happening. For example, they also need to be able to digest the impact of existing regulations such as Ucits IV, even though in Europe there is already a move towards Ucits V and discussion around Ucits VI.

There is concern in markets outside Europe about the cost implications of regulating AIFs, Saluzzi said. For example, some investors in Hong Kong have signalled that they are still interested in regulated AIFs, but only if total costs to not rise more than 50bps as a result of the increased regulation.

The cost discussion also affects the depositary banks in Luxembourg. Currently there about 67, but it is not certain that all will want to take on the responsibility and additional cost associated with the AIFMD. Consolidation could follow.


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