The Middle East is worth a trip for the fund industry
The Gulf Region is important to the Luxembourg fund industry and this is reflected in the frequent visits by ALFI representatives. The Luxembourg investment fund association takes the region so seriously that it set up its first non-Luxembourg based working group in Dubai. In an LFF interview, ALFI chairman Claude Kremer speaks about business in the Gulf Region and about challenges for the fund industry.
How has the fund industry recovered from the financial crisis?
The European fund industry has clearly shown its resilience. During the crisis assets under management fell by 25%, but now we are back to all time highs. Obviously this has a lot to do with stock market recovery but it is also due to a steady inflow of “fresh” money and here Luxembourg played an important role.
In what sense ?
During 2010, around 200 billion euros of new assets were invested in funds. A considerable amount of 150 billion euros were invested in Luxembourg domiciled funds.
Why is the Gulf region so important for the Luxembourg fund industry?
Luxembourg domiciled funds are starting to profit from global recognition of the UCITS brand. UCITS first developed as a European brand, with the idea of a passport facilitating distribution across the EU. We recently celebrated the 25th anniversary of UCITS, which in the meantime has become a global brand. A lot of UCITS funds are distributed outside Europe. Today, Luxembourg is a world leader in cross-border fund distribution. According to Lipper FMI, 76% of all funds that are sold in at least three countries are domiciled in Luxembourg. Some of these funds are sold in more than 50 countries worldwide: in Europe, of course, in Asia, Latin America and increasingly here in the Middle East
How does a Luxembourg fund reach a client in the Middle East?
First of all the asset manager has to choose a domicile. In Europe, he is most likely to choose Luxembourg or Ireland. Once the domicile chosen, the product has to be set up and sold via a distribution network. This depends on how the fund promoter is organised. In this context, the UCITS brand is a big help. If you tell an investor that his savings plan is a UCITS product, increasingly, this is recognised as meaning that the investment is sound and well diversified, and above all that it is well regulated, providing comfort that his money is safely invested.
What about competition with offshore funds? Is a Luxembourg domiciled fund less competitive because more expensive?
You shouldn’t compare apples and oranges. In Europe we believe in the concept of well regulated funds and this will not change in the future. We have noticed that during the crisis many investors lost confidence and that is why they turned to more regulated products. A lot of offshore products have been re-domiciled onshore and many recently created products were directly set up as regulated funds. Luxembourg has a key part to play here, both in the UCITS and in the non UCITS markets, that is, in the domain of alternative investment funds where Luxembourg is well positioned because of its special investment funds (SIFs).
This means that Luxembourg should use the UCITS experience as a source of inspiration and replicate it for the alternative asset classes?
UCITS has shown us that Luxembourg has the capacity to help shape a brand in the interests of investors. Luxembourg intends to have the same approach when it comes to the Alternative Investment Funds Directive (AIFMD). I must add that we anticipated the Directive with our legislation on Specialised Investment Funds in 2007. This law created a product that is exactly in line with what the AIFM is trying to achieve, a long time before AIFM was in the news.
How hard is it as a market leader to keep being innovative and creative?
The Luxemburg fund community, represented by ALFI, is a very dynamic bunch of people. If we are on a road show abroad, we speak with one voice, which I think is fantastic. Although we are competitors on a day-to-day basis, we are unique when it comes to showing solidarity in spreading one and the same message. This gives us strength and makes us convincing. It creates both admirations on an international level. ALFI coordinates numerous working groups covering all key topics of the fund business. These groups are a major source of innovation: our members put a lot of efforts and commitment in them with one shared goal: the development of Luxembourg as a center of excellence for the fund industry.
Interview by Christian Welter