Luxembourg gets ready for European Union hedge fund jurisdiction battle

Luxembourg is gearing up to become a leading jurisdiction for the European hedge fund industry in time for implementation of the EU’s alternative investment fund managers (AIFM) directive.

The Association of the Luxembourg funds Industry, Alfi, is priming Luxembourg to become the product platform and distribution hub for non-European managers by the time the AIFM directive comes into force in July 2011 although the deadline for member states to implement the law is 2013.

Some of the main issues confronting the jurisdiction centre on attracting service providers and ensuring it has the capacity to take on more work.

The challenge to other EU jurisdictions, primarily with an eye on Ireland and the increasingly competitive Malta, came during the Alfi spring conference.

Institutional investors are considered a “prime target” for the Luxembourg fund industry, according to Mark Saluzzi, partner and Luxembourg financial services leader at PricewaterhouseCoopers (PwC). Institutional investors are currently estimated to provide 50% of investment to the alternatives industry.

According to Freddie Brausch, partner at Linklaters and board member of Alfi, the AIFM directive is an “opportunity and a threat” for Luxembourg.

Saluzzi said threats were in part triggered by the fact that the directive was “written in a hurry” with a “one size fits all approach”. As a result the directive will be difficult to implement, he said.

However, he thinks Luxembourg’s proven infrastructure for alternative investments as well as its expertise in handling Ucits products will give it an edge.

According to Marnix Arickx, managing director of hedge fund engineering at BNP Paribas, the main challenge facing Luxembourg is a “capacity issue”. To have more Luxembourg-domiciled funds, he said the country would need “more staff and service providers with the bandwidth to take on more business. Luxembourg needs to be careful,” he warned, adding that there were capacity issues that the Grand Duchy would need to face and overcome.

Luxembourg has the tenacity to fight for its role as a leading fund jurisdiction, according to Jeremy Soutter, global head of product at Aviva Investors. He is confident about this as a large proportion of Luxembourg’s GDP comes from the financial services sector and specifically the alternative investment industry.

“The success of a domicile is how it is known as a set-up for what it sells, making sure the product is well known and leading edge and with an infrastructure with a strong operational ability to support the product. Luxembourg is a league ahead in terms of desire and support,” concluded Sanjiv Sawhney, global head of fund services at Citi.

 

Read the next print issue of Investment Europe for further analysis of the impact of alternative investment fund regulation and Luxembourg’s approach to it.

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