Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Luxembourg

29037

EY Luxembourg publishes 2018 edition of Investment Funds in Luxembourg

RELATED TOPICS​

EY Luxembourg has just released its 2018 edition of Investment Funds in Luxembourg – A technical guide, designed to answer many questions on setting up and operating investment funds in Luxembourg.

The 2018 publication has been updated to cover recent legislative and regulatory changes. 
 
Luxembourg investment fund assets under management grew on average by 15 per cent last year, asset flows grew by 5 per cent, and profits grew by 10 per cent, while margins were broadly maintained somewhere close to 37 per cent.
 
These positive trends were supported by strong underlying demand for investment products driven by an ageing demographic, the shifting to long-term savings and a growing middle-class in emerging markets, and rising equity markets across the globe, coupled with a relatively benign interest rate environment.
 
This resulted in very strong asset flows into the passive sector with continued greater focus and flows to alternatives.
 
Notwithstanding the many positive headlines on passive sector growth, active managers that have been able to demonstrate true alpha credentials have been able, and will continue, to attract assets. 
 
However, according to EY, the initial positive headlines mask some key fault-lines that the industry is facing and will have to deal with over the coming years. Many of these have been on-going for a number of years, and include:
 
1. Implementing the ever-evolving regulatory agenda, made more complicated by a series of political uncertainties (including Brexit),
 
2. An increasing cost base arising from implementing the regulatory agenda along with having to absorb certain costs that were previously charged to the investor,
 
3. Downward pressures on overall fees – a contagion (or active alignment?) of passive sector pricing along with increased challenge from investors and regulators of the value for money proposition of the active sector,
4. The investment cost of dealing with technology and digital innovation in all parts of the value chain coupled with the related competitive disruption challenges and the increasing
 investor demands for a digitalised service experience. 
 
Alongside these challenges, the phenomena of ‘winner takes all’ is accelerating, with the top 10 global managers attracting over 80 per cent of all flows: ‘biggest is seen as best’ as size drives better operating margins and asset retention. In addition investors, both retail and institutional are increasingly focussed on the non-financial returns of their investments with a growing demand for compliant solutions.
 
The likely outcome of all of this over the coming three years will be an AUM growth rate of around 4-5 per cent per annum with revenues remaining broadly flat and the gap between winners and losers getting wider.
 
So, the one and only remaining key question is: how to remain relevant and continue to grow in these changing times?
 
A twin track strategy of enhancing distribution and getting bigger is required, in order to make the most of the remaining good times whilst preparing for disruption and leaner times ahead.
 
Enhancing distribution will involve gaining a better understanding of the investor through clearly identifying who is the target customer, the use of customer analytics to predict buying needs, and above all, “owning” the customer relationship. In addition, product evolution and agility will be critical, moving away from product to solution, from relative to absolute returns (with pricing alignment) and providing a range of ESG / sustainable investment solutions. All of this will also involve enhancing the investment process through the use of alternative data, analytics and artificial intelligence.
 
Getting bigger – size does matters as it drives economies of scale, large firms’ costs as a proportion of AUM are half that of smaller firms , outflows for smaller firms are twice the industry average, larger firms have deeper pockets for investment in innovation and there is an increasing trend of institutional asset owners looking for fewer, larger strategic partners.
 
So, if organic growth is not possible, consideration must be given to acquisitions, to purchase more of the same assets to generate cost synergies, or to acquire new capabilities, for example, quant, expanding distribution or obtaining greater geographical reach.

Latest News

Brown Brothers Harriman & Co has expanded its relationship with AllianceBernstein (AB), by adding to..
The trading and investment platform eToro has extended its proxy voting feature to all stocks..
C8 Technologies, the London-based fintech founded by former BlueCrest Capital Management partners Mattias Eriksson and..

Related Articles

The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also,..
Lady justice
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report...
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI)..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by