The ALFI Global Distribution Conference on September 15-16, organised in co-operation with NICSA and HKIFA, the industry associations of the US and Hong Kong, took place this year at the Philharmonie. Our usual venue at the Centre de Conference is hosting meetings of Luxembourg’s Presidency of the European Council during the second half of 2015.
Kick-off of the conference by ALFI's new chairman - Denise Voss
Denise Voss, Chairman of ALFI
The conference was opened by Denise Voss, who took over from Marc Saluzzi as Chairman of ALFI in June. In her introductory speech, Ms Voss said Luxembourg now has a record E3,500 bn in AUM, with E252bn of new money flowing into its funds since the start of the year. But she cautioned against complacency: ‘We continue to be optimistic for our industry but the recent volatility and drop in values in emerging markets will undoubtedly have a negative impact on AUM – in the short term at least.’
Challenges ahead for ALFI, said Ms Voss, include working with the Luxembourg government to ensure efficient fund taxation, while challenges for investment firms and the fund industry include addressing the needs of an ageing population and embracing technology.
NEW Twitter campaign #askALFI
ALFI recently launched a new campaign on Twitter called #askALFI. Followers can ask questions related to the investment fund industry using hashtag #askALFI and ALFI experts respond to selected questions via short video messages.
The videos recorded at the conference are available here.
Conference in pictures
FinTech takes centre stage
H.E. Pierre Gramegna, Luxembourg’s Minister of Finance
Financial technology is no longer a back office function, and is becoming a key driver of industry performance from front to back office. H.E. Pierre Gramegna, Luxembourg’s Minister of Finance, told conference delegates: ‘Changes in technology are not only changing the way we perceive the world, but your whole business model.’ Minister Gramegna said he had tasked Luxembourg for Finance, the agency which fosters growth of the financial sector, to channel more resources into FinTech activities.
Fund managers, too, acknowledged the rising importance of FinTech. Anne Richards, Chief Investment Officer of Aberdeen Asset Management, said: ‘The two aspects of FinTech that are interesting to us are the possibility of it being disruptive to our supply chain and its ability to deliver investment solutions.’
Anne Richards, Aberdeen Asset Management
Ms Richards said the fund management industry, to date, had been slow to adopt FinTech, a view that was shared by many at the conference. Service providers urged the industry to engage more with FinTech and support nascent providers of innovative technology. Nicolas Buck, for instance, CEO of Sequoia, said: ‘Behind every tech enhancement there is an entrepreneurial story, a small business.’ Mr Buck congratulated ALFI for offering exhibition stands to a number of FinTech companies and launching FinTech speed presentations during the lunch breaks. ‘It is important for our industry to embrace that topic,’ Mr Buck added.
Delegates predicted that FinTech would move beyond dealing with volumes of data, to dealing with KYC issues, distribution, commissions and data analysis.
Capital Markets Union moves ahead
The President of the European Commission, Jean-Claude Juncker, established CMU to increase funding to SMEs, to create more opportunities for investors and to facilitate cross-border investment.
Panel discussion: Capital Markets Union, on the verge of a new era
For CMU to work, it will require fixes to existing rules and commitments, said Jonathan Griffin, Managing Director, JP Morgan Asset Management (Europe). ‘The single market is far from complete, there is still fragmentation across states,’ he said.
The UCITS passport must work more efficiently and UCITS funds must be able to invest more easily in loans, was the view of Claude Niedner, partner at Arendt & Medernach.
The Commission’s public consultation on securitisation would be beneficial for the EU’s economy, it was generally agreed. Securitisation can also offer stable cashflows to long-term investors such as pension funds and insurance companies. Other aims of CMU, such as unlocking private investor’s savings, and encouraging additional sources of funding such as investment funds, would add jobs and increase growth in Europe.
Doing business in emerging markets
Panel discussion: China, Hong-Kong, Taiwan – the ‘promised lands’ for fund distributors?
Three Asian fund initiatives are moving ahead in parallel. These are: Mutual Recognition of Funds between mainland China and Hong Kong, the Asia Region Fund Passport and the ASEAN CIS Passport.
Mutual Recognition of Funds (MRF) is still a work in progress, according to Sally Wong, CEO of HKIFA. Regulators are still working on applications both northbound and soundbound and are assessing issues such as quotas and order flow.
Meanwhile, six jurisdictions have signed a memorandum of understanding for the Asia Region Fund Passport. Securities regulators are due to produce a substantive framework within 12 months.
Will these initiatives reduce demand for European fund products, such as UCITS? Ms Voss, of ALFI, thought otherwise: ‘Given the continued rise in the number of middle class consumers, including in China, as well as the low penetration of funds in emerging markets, there is lot of opportunity for growth globally for investment funds.’
But European jurisdictions must continue to communicate with and educate Asian investors and regulators if they want their products to remain relevant in Asian markets. ‘We have to monitor closely what is happening in Europe,’ said Ms Wong. ‘We are watching developments in UCITS V such as the impact on depositaries and on remuneration. We need our European counterparts to help educate us on these issues.’
Jose Carlos H. Doherty, ANBIMA
Of course, the opportunity in emerging markets extends beyond Asia. Brazil’s fund industry, for one, is now the 7th biggest in world, with 12m investors and $990bn in AUM at end-2014. Growth in assets has been mainly due to a rise in high net worth individuals and the mass affluent, according to ANBIMA, the Brazilian funds industry association. The opportunity for foreign managers is growing as Brazilian investors gradually switch out of fixed income and into shares and foreign securities. Fixed income represented 80% of Brazilian assets in 2000, but that has now fallen to 44% as investors diversify their assets, said Jose Carlos H. Doherty, CEO of ANBIMA. The regulator now allows pension funds to double their allocations to foreign assets, he added, and Brazil’s upcoming reform of its investment fund regulation will allow Brazilian investors invest outside of Brazil, via Brazilian feeder funds and into regulated investment funds including, it is anticipated, UCITS.
The challenges for the industry now, Mr Doherty said, include raising funds to meet growing Brazilian infrastructure requirements.
Pension assets – an expanding
Dariush Yazdani, PwC Luxembourg
Pension assets will surge amid ageing populations, and pension funds will increasingly invest outside the borders of their home countries. These were the findings of a study commissioned by ALFI and produced by PwC. The study, presented for the first time at the conference, noted that in 1950 there were only eight retirees per 100 people. This number will rise to 25 per 100 by 2050. ‘This is the pension bomb that gives governments sleepless nights,’ said Dariush Yazdani, PwC partner and author of the study.
Pay-as-you-go systems are no longer viable and governments are pushing the pension burden onto individuals and corporates, Mr Yazdani said. As a result, pension assets will rise at a compounded rate of 6.6% a year from now until 2020 to reach some $55,000 bn.
Pension funds are increasingly investing outside their borders, which is a real opportunity for asset managers and for Luxembourg. Much of this investment will take place through mutual funds, which are attractive because they are highly regulated.
The study can be downloaded here.
Tax and regulation – are we done?
One of the biggest questions at the conference was whether we can now expect an end to the wave of regulatory and tax initiatives which have preoccupied investment firms since the financial crisis. The answer is: yes and no.
There was agreement that the industry was unlikely to face new regulation in the immediate future. However, there remained the considerable task of bedding down recently implemented regulation and refining rules and roles.
Jean-Marc Goy, CSSF
Jean-Marc Goy, Counsel for International Affairs at the CSSF in Luxembourg, said: ‘We should focus on fixing on what can be fixed to improve existing legislation instead of coming up with new initiatives. The time is right for a regulatory break, and for regulators and supervisors to apply in practice the new rules.’
Tax is a different story, however. Global tax initiatives such as FATCA, the Common Reporting Standard and BEPS, are only in their infancy and will pose challenges to investment firms and regulators alike as they are developed and implemented. As noted during the conference ALFI continues to defend the interests of investment funds in respect of these initiatives and ALFI working groups are active in developing practical solutions to implement them.