ALFI Rentrée, day 5: Strategic vision: the future of Luxembourg’s fund industry

The first UCITS directive put Luxembourg on the road to becoming the world’s leading cross-border fund centre, and Capital Group’s Jean-Marc Goy says the mooted alignment of the UCITS and AIFMD regimes should not risk its three decades of success, in Europe and beyond. “Alignment may be easy in liquidity management, but reporting and especially valuation are more complex,” he warned.

Sustainability is central not only about investment but how businesses operate, argued

LuxFLAG chairman Denise Voss: “Asset managers are in the hot seat for the EU’s sustainable investment plans. There are enormous opportunities and significant flows into sustainable finance – $71bn worldwide in the second quarter. Young people expect ESG considerations to be part of products and strategy, and so do potential recruits.”

Impact Investing Institute board member James Broderick says sustainability is “unfolding faster than anything I’ve ever seen in asset management. Once considered philosophical, emotional or ideological, the flows of capital show it’s a challenge for managers whatever their stance.” Global warming was the catalyst, but Covid-19 has highlighted a broader range of environmental and social issues – such as how to achieve a ‘just transition’ to a low-carbon world.

Portfolio manager Karim Khairallah says Oaktree Capital identified 15 years ago Luxembourg’s benefits for alternative funds and their investors: “rule of law, political stability, fairness and transparency, and policy-makers committed to alternatives, plus the security the CSSF provides investors.” He says it’s critical for private equity firms, too, to have ESG in their DNA. “A lot of it is common sense – we were doing 95% of it already, but now have processes to manage and monitor issues and fix them in the companies we acquire.”

The final word at ALFI Rentrée went to Nasir Zubairi, CEO of the Luxembourg House of Financial Technology, who says fintech can help institutions deal with soaring compliance costs as well as create value throughout their business. “With compliance at 50% of Luxembourg banks and fund firms still largely manual, regtech can give institutions a huge competitive advantage,” he said, while “artificial intelligence is set to make processes and decision-making more efficient.”