Investment funds: Challenges ahead
In order to maintain its position as a global leader, the Luxembourg financial centre will have to continue and accelerate its efforts in terms of innovation. Read our interview with Mathieu Maurier and Laurent Marochini, respectively Country Head and Head of Innovation, Societe Generale Securities Services Luxembourg.
Investment funds are central to the country’s financial industry. What is your perspective on the trend?
Mathieu Maurier (MM) – With more than $5.2 trillion1 in assets under management as at 31 May 2023, Luxembourg is one the world’s leading cross-border fund centres. This tremendous growth has been fuelled since 1988 by the pooling of entrepreneurial ideas and the expertise of the many operators in the marketplace, authorities, public institutions and private sector organisations, all of which are guided by objectives of pragmatism, agility and excellence in execution.
What place does digital transformation have in the fund industry in Luxembourg?
MM – The fund industry's major growth took place over nearly four decades, capitalising on operational and technological resources still in place today. The transformation happened gradually, industrialising an operating model that has changed little, if at all. The industry has created its own complexity by combining separate processes specific to each fund service, whether for NAV calculation, the administration of registrars, the custody of securities or dedicated trustee services. If we were, in 2023, to go back over those years with the new technological capabilities available to us and that we have been testing over many years, we would have made completely different choices. It is our responsibility to question our ecosystem, which of course remains relevant, but which is undeniably showing signs of losing steam moving towards a more distant future. This is essential for the longevity of the Luxembourg financial centre.
Societe Generale has often been seen as a pioneer in terms of innovation. Does that remain the case?
Laurent Marochini (LM) - In Luxembourg, our goal is to leverage the use of data to improve operational efficiency, provide a customised and smooth client experience and improve our risk controls (particularly anti-fraud measures). For example, using the Societe Generale group’s digital tools, we can now automatically read prospectuses or documents in order to extract the information we need and automatically insert it into our information systems.
The use of Artificial Intelligence (AI) is not a new topic for us, regardless of the recent media coverage of the subject with Open AI. Since 2014, Societe Generale has been significantly and continually investing in this field. AI is one of the strategic drivers of efficiency and client satisfaction, with estimated value creation of more than €500 million by 20252. Within our Group, we have so far identified more than 340 use cases of data in production, 50% of which3 are AI-based.
What are the key factors for success?
MM - Digital transformation is not just a technological challenge. It is above all an issue of corporate culture and expertise. This transformation cannot happen without dedicated skills and, here, we can count on a significant pool of scientists and engineers. Transformation must be approached from the point of view of the business lines. In this context, we train all our employees to raise their awareness and make them focus on "data". We have also recently transformed our issuer services business, replacing a very old operational platform in order to capitalise on the digital pillars made available by our Group. The collective involvement of the project, operational, technology and IT teams and our data experts, drawing on an “agile” methodology, was the key success factor in this iconic transformation.
Training and the associated skills are real challenges in transforming the fund industry. Do you foresee any other risks?
LM - From a strategic point of view, the status quo may put the industry at risk. Luxembourg’s leadership position may be called into question in the coming years if the industry does not continue the move towards new technologies. The technological ecosystem, including LHoFT4 and industry associations such as ABBL5or ALFI6, is doing remarkable work to position the country on the future world map. In our digital world, we are more vulnerable than ever. We need to think about cybersecurity “by design”, with all the stakeholders in the value chain. Cybersecurity is an absolute priority in ensuring data security and protection.
In conclusion, what technologies will impact the fund industry over the next three years?
MM - Getting to grips with cloud/data lake technologies and APIs7 that can revolutionise our data management models – and therefore our operating models – is one of the main short-, medium- and longer-term challenges.
LM - We can make further progress in the way we use AI, including generative AI, to combine operational efficiency with the development of new business models for our clients.
Interview published in Paperjam in September 2023.
1. www.alfi.lu/en-gb/pages/industry-statistics/luxembourg
2. SOURCE: www.societegenerale.com/en/societe-generale-group/strategy/innovation-and-digital
3. SOURCE: www.societegenerale.com/en/societe-generale-group/strategy/innovation-and-digital
4. LHoFT: Luxembourg House of Financial Technology
5. ABBL: Luxembourg Bankers’ Association
6. ALFI: Association of the Luxembourg Fund Industry
7. API: Application Programming Interface
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