Assets under management in European responsible investment funds see compound annual growth of 25% between 2012 and 2014, according to the ALFI/KPMG 2015 European Responsible Investing Survey.
Commenting on the survey, Jane Wilkinson, partner and head of sustainability, KPMG Luxembourg, said: “We are pleased to see the results of this survey reflecting a growth and dynamism of this sector and that product innovation and a set of promising opportunities, for example the development of green and social bonds, have been identified. It is clear that asset managers today can no longer choose to ignore this market segment - they must be prepared to answer questions from their stakeholders around this topic. Failure to anticipate and act upon these questions is likely to result in chances missed and business lost.”
“Whilst responsible investing tends to be niche and institutional, it is ahead of the rest of the market in many ways,” concludes Anouk Agnes. “Responsible investing already focuses on simplicity, transparency, honesty and integrity. It should appeal to the investors of the future, who are already more environmentally and socially conscious. By 2030 responsible investing will move from being a niche product targeting mainly institutional investors to a mainstream investment product, and it’s up to fund managers to seize this opportunity and build their brands on firm “responsible” foundations.”
Download the survey here.
Download the executive summary here.
There is little advantage in waiting according to discussions at ALFI Leading Edge conference on 25th March 2015.
Luxembourg's regulator gets ahead of UCITS V
Due diligence and ongoing review
Segregation of assets and record keeping
Governance and conflicts of interest
Liquidity oversight and other controls
The new obligations of the ManCo
Next steps for depositaries
On 23 February 2015, ALFI responded to the consultation on cross-border regulation which was published in November 2014 by IOSCO.
The consultation report describes three cross-border regulatory tools:
- National treatment;
- Unilateral and mutual recognition; and
Moreover, the report outlines challenges from a regulator’s and stakeholders’ perspective, and lists suggestions on IOSCO’s role regarding cross-border issues.
Based on the feedback received, IOSCO’s task force on cross-border regulation is mandated to develop a cross-border regulatory toolkit, containing common terminology, of regulatory options for use by IOSCO members, and, where appropriate, to lay a foundation for the development of guidance on the coordinated use of the toolkit.
Download the document by clicking here.
On 17 February 2015, ALFI responded to the discussion paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs), which was published in November 2014 by the European Supervisory Authorities (ESAs).
The ESAs are mandated by the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products to develop draft Regulatory Technical Standards (RTS) on the content and presentation of the KIDs for PRIIPs. The aim of the KIDs is to provide EU retail investors with consumer-friendly information about investment products with the ultimate aim of improving transparency in the investment market. In order to ensure that all views and options are taken into consideration when developing the RTS, the ESAs were seeking stakeholders’ views on how these standardised KIDs should be developed. This discussion paper was a first step in the ESAs’ joint work on the broad issues to be considered in developing the RTS.
On 10 February 2015, ALFI responded to ESMA consultation paper on the review of the technical standards on reporting under Article 9 of EMIR.
Download the document by clicking here.
ALFI published today its response to the ESMA Consultation Paper - Guidelines on asset segregation under the AIFMD.
Download the document by clicking here.
The fund industry plays a key role in economic growth and, after a period of focusing on regulation, 2015 should be a year where asset management companies can not only implement the regulation that has been introduced, but also grow their businesses and focus exclusively on serving investor needs.
2014: a good year for Luxembourg
2014 was a historical year for the Luxembourg fund centre. For the first time in its history, assets under management exceeded the EUR 3,000bn threshold in September. After 12 months of uninterrupted growth, this figure stood at EUR 3,095bn (USD 3,758bn) at the end of December 2014. More than half of the growth (52%) was driven by net sales.
Luxembourg retained its position as the leading European domicile in 2014, attracting more than 42% of the net sales of European regulated funds (at the end of November 2014) which is twice as many as the second domicile. In 2013, net sales represented 46% of all net sales in European regulated funds, 53% more than the second fund domicile. “We’ve also seen an average of 100 new promoters coming in each year, notably following the introduction of AIFMD, and we currently have 183 authorised AIFMs, putting Luxembourg in 3rd place in Europe after the UK and France,” Marc Saluzzi, chairman of the Association of the Luxembourg Fund Industry stated at its annual Luxembourg press conference.
“After years of intense – and expensive – regulation, it is time to let asset management companies concentrate exclusively on serving investors,” said Marc Saluzzi. “Investment funds enable people to plan for their long-term financial security, they benefit the economy in terms of job creation and it is essential that, after a period of focusing on regulation, 2015 should be a year where asset management companies can not only implement the regulation that has been introduced but also grow their businesses.”
Mr Saluzzi also highlighted the key role the fund industry plays in economic growth: “Investment funds are important mobilisers of financial resources from private, institutional and public investors. They form a key link between investors and corporations, banks and government agencies which need funding, and funding is channelled from one country to another, around the world.”
Tax issues are topical again in 2015
At the beginning of the new year, the introduction of a financial transaction tax (FTT) is back on the agenda, a tax that ALFI strongly opposes.
In the context of the recent work within the OECD base erosion and profit shifting project, to which Luxembourg is actively contributing, ALFI believes that there are good grounds for UCITS to be considered as residents, thereby avoiding double taxation of income at both fund and investor level.
In Luxembourg, ALFI has opened talks with the Government on the fiscal treatment of investment funds. The aim of these talks is to analyse carefully the efficiency of investment fund taxation in a highly competitive environment. The access of investment funds to double taxation treaties as well as Luxembourg’s positioning in the rapidly growing area of passive asset management are of particular importance in this context.
Luxembourg fund industry committed to growth
ALFI has noticed the first signs of a growing trend that countries are trying to seal their markets off from foreign competitors. Despite this, the Luxembourg fund industry is targeting new markets, namely Brazil, Mexico, Australia and China. In China the progressive internationalisation of the Renminbi – and the position Luxembourg has gained as an offshore RMB centre – as well as the Shanghai Hong-Kong stock connect program are fuelling hopes of a gradual opening of the Chinese fund market.
With the entry into force of the AIFMD, the Luxembourg fund industry is striving to replicate its UCITS success story in the alternative sector. In addition to a total of 183 Alternative Investment Fund Managers authorised to date, the incorporation of 419 Limited Partnerships since the legislator introduced this legal structure into Luxembourg law is a clear indicator of the strong interest of AIFMs in the Luxembourg fund centre.
Innovative products and a strong focus on responsible investing should also contribute towards the Luxembourg fund industry’s growth targets. ALFI therefore welcomes the creation of a new regulatory framework for private European Long-Term Investment Funds (ELTIFs) that would only invest in businesses that need money to be committed to them for long periods of time. These new products would be especially suitable for infrastructure financing, which is increasingly required across Europe.
Last but not least, the Luxembourg fund centre will continue to enhance its market infrastructure allowing it to service not only funds domiciled in Luxembourg, but also funds based abroad, thereby contributing to the evolution of Luxembourg from a fund domicile to a fully-fledged fund servicing centre.
With 180, 275 and 475 registrations respectively, the financial seminars organised last week by the Association of the Luxembourg Fund Industry (ALFI) in Taipei, Tokyo and Hong Kong attracted a record interest among the local fund industry professionals.
With its regular roadshows, ALFI aims to further strengthen the leading position of Luxembourg domiciled investment funds on the main Asian markets and to increase the number of Asian fund promoters using Luxembourg as their hub for distributing their products across Europe.
At ALFI’s seminars, experts drawn from a variety of professions in the Luxembourg financial center highlighted Luxembourg’s position as Europe’s leading domicile for UCITS funds and explained how new regulations like UCITS V, UCITS VI, PRIPS, MIFID or EMIR might affect the international asset management industry and cross-border UCITS distribution.
Marc Saluzzi, Chairman of ALFI, said: “We have had close links with the stakeholders of the respective fund industries in the Asian region for many years. It’s clear that there’s huge interest in Asia in what we have to offer in Luxembourg and how we can enable Asian fund managers access markets globally by using the UCITS and AIFM regulation.”
The seminars also addressed the practical solutions offered by the Luxembourg fund industry for structuring Luxembourg based alternative investment fund products. A recent survey conducted by Oliver Wyman has actually shown that the introduction of the AIFMD will fuel strong growth in fund domiciles that offer “one-stop-shop” solutions like Luxembourg. As a leading international domicile for alternative asset classes, Luxembourg is very well positioned to attract new alternative fund promoters.
At its Hong Kong seminar, ALFI placed a special focus on the Shanghai – Hong Kong Stock Connect program that enables foreign investors to trade Shanghai-listed shares via the Hong Kong stock exchange, and mainland investors to invest in Hong Kong shares via the Shanghai stock exchange. A number of Luxembourg UCITS have already seen the opportunity that this represents and sent their applications to the supervisory authority. The first one was approved at the beginning of December 2014.
The possibility of launching Renminbi Qualified Foreign Institutional Investor (RQFII) funds under the UCITS scheme met with great interest among the audience. Given that Luxembourg UCITS are a well-known investment scheme distributed in around 70 countries, Luxembourg is the ideal hub for initiators to launch RMB denominated investment funds and to distribute them globally in order to support the internationalisation of the RMB.
Download the press release here.
ALFI has taken note of the OECD Public Discussion Draft “Follow-up Work on BEPS Action 6: Preventing Treaty Abuse” dated 21 November 2014.
This Follow-up Discussion Draft was issued further to the release of the report “BEPS Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances” in September 2014.
ALFI’s response addresses the situation of collective investment vehicles (“CIV”) being widely-held, diversified, and subject to investor-protection regulation in the country of establishment of the CIV, as previously defined by the 2010 OECD report on treaty eligibility for investors in CIVs and section A of the Follow-up Discussion Draft relating to the LOB provision and treaty entitlement.
ALFI takes the view that CIVs are principally set up for genuine commercial reasons and given their economic characteristics it is reasonable to conclude that CIVs cannot, in principle, be effectively used for treaty shopping. This is the reason why the main focus of the BEPS action plan is – and should remain – multinationals and not CIVs. ALFI further believes that there are good grounds to consider that all CIVs set up as UCITS should always be considered as residents for treaty purposes.
Consequently, ALFI believes that the final report on Action 6 should foresee that all CIVs set up as UCITS as well as all other widely-distributed non-CIVs whose characteristics are similar to those of UCITS will automatically qualify as resident for the purpose of article 1 of the OECD Model Convention and that they will also be considered as qualified residents for the purpose of the LOB clause. Finally, ALFI also suggests to include a statement that Contracting States are encouraged to consider that UCITS and comparable non-CIVs will not be considered as creating opportunities for treaty shopping.
You may access ALFI’s response here.