Luxembourg: soon to be the European leader in alternative funds?


As one of Europe’s leading providers of traditional investment fund services, Luxembourg already has numerous advantages for seizing the potential of the alternative fund market.

The European leader and world no. 2 in terms of net assets of domiciled funds, Luxembourg has €5,200 billion in assets under management, i.e. 26.2% of the European Union (EU) market in 2023. Worldwide, the United States has €31,800 billion in assets under management, i.e. 49.4% of the global market compared with 8.1% for Luxembourg1.

A competitive financial centre thanks to its expertise

Luxembourg’s asset management strength lies in a broad range of fund services for traditional and alternative asset managers alike. Although the portfolio manager function is mainly outsourced to an EU country or a third country, the Luxembourg ecosystem allows investment managers worldwide to benefit from the expertise of market service providers. It includes all fund administration services – domiciliation or corporate services, accounting and net asset value calculation services, registrar and depositary services – and a comprehensive legal arsenal, such as the private equity special limited partnership and the RAIF (reserved alternative investment fund) structure, launched in 2016.

Luxembourg’s competitiveness, in the eyes of managers, also stems from its critical mass, enabling it to easily absorb fund creation and control the diversity of managed investments.

Private Equity Fund: Luxembourg’s position

In alternative management, Luxembourg does not have quite the same positioning: in terms of assets under management, domiciled funds are distributed 85% in UCITS and 15% in non-UCITS, compared with a 60/40 share in Europe as a whole. In terms of market share, Luxembourg, France, Ireland and the United Kingdom are on a level pegging, behind Germany2. The latter has a large number of real estate funds, together with traditional strategy funds marketed solely to professional clients under the AIFMD.

This situation can be explained in part by a relatively closed circle of sophisticated investors (institutional and professional) in alternative funds, which does not call for cross-border marketing. Indeed, for alternative funds, geographical proximity to potential investors seems to be an important criterion for managers in their choice of domicile. Going back in time a little, the success of the local marketplace lies in the creation of UCITS, with the initial directive of 20 December 1985. Through this directive, along with UCITS III, IV and V, all UCITS can be sold in all European Union countries. However, the 2011 AIFMD, transposed in Luxembourg in July 2013, does not allow for the passporting of alternative funds in Europe. As a result, a Luxembourg alternative investment fund (AIF) must obtain the prior agreement of the country in which it wants to sell its units or shares.

At the centre of Europe, the possibility of operating in different languages is a significant advantage for Luxembourg. The CSSF agrees to receive any fund approval application in German, French and English. And for alternative investment to be a real success locally, the AIF would need to be marketed like UCITS, and also be open to “retail” clients, which would require a true cross-border distribution policy.

Market opportunities

We believe the ELTIF 2 regulation presents a significant opportunity for Luxembourg, with the removal of the investment threshold to attract more retail investors, which will require the activation of the European passport. It should be noted that more than half of current ELTIFs are already domiciled or administered in Luxembourg, despite the limited success of this type of fund. However, some regulatory constraints, including a five-year buyout ban, do not favour ELTIF 2 as a truly popular alternative investment vehicle.

Looking beyond domestic AIF markets, Ireland is Luxembourg’s direct competitor as a pan-European provider of fund services. It has nearly €3,000 billion in UCITS-domiciled assets and around €900 billion in non-UCITS or AIF-domiciled assets, accounting for 19.3% of European funds. While its overall assets under management are still below those of Luxembourg, Ireland is at the same level for AIFs. One of Ireland’s major advantages is surely its proximity to the United Kingdom and the United States through its Anglo-Saxon culture, shared language and the same legal framework, giving rise to a similar approach to setting up investment fund structures (for example, unit trusts).

Currently, 56% of global authorisations to distribute funds abroad are granted to Luxembourg funds3. In this context, Luxembourg would benefit from becoming more attractive to European and Asian clients, by relying on the performance of its ecosystem, recognized worldwide for its quality.

Article published in Paperjam (in French).

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Qing Yang
Head of Alternative Fund Services, Societe Generale Securities Services in Luxembourg

1 Source: CSSF and EFAMA (European Fund and Asset Management Association)
2 Source: EFAMA

3 Source: PwC