Luxembourg is the global hub for cross-border investments and a gateway for Chinese investment flows. With over € 4.3 trillion in assets under management (AuM), Luxembourg is the largest investment fund centre in Europe and the second largest in the world. Fund promoters use Luxembourg as a platform to domicile funds that are then subsequently distributed to retail, high net worth, and institutional investors. There are over 3,600 investment funds representing over 14,500 fund units in Luxembourg.
Hub for RMB funds
Numerous funds have an investment policy that is focused on global emerging markets, the Asian region or, specifically, on China. This is why RMB-denominated assets have accumulated in the portfolios of many Luxembourg-based funds. These international RMB fund promoters include many of the most prestigious names in the industry, such as Aberdeen, BlackRock, Fidelity, First State, HSBC, JPMorgan, Schroders, and Deutsche Bank. These, and other institutions, are eager to further develop the scope of their RMB business. Over 40% of international funds globally investing into Chinese capital markets are domiciled in Luxembourg.
Chinese asset managers that have opted to launch a range of European investment funds via their Hong Kong subsidiaries, have selected Luxembourg as the domicile for those funds, including China AMC, ICBC Credit Suisse Asset Management, Prax Capital, and Quam Asset Management. Moreover, in April 2019, Tus Science & Technology Services Group launched the China-Luxembourg Innovation Investment Fund, the first Chinese equity fund domiciled in Luxembourg to support innovative and fast-growing businesses.
Accessing the Chinese onshore capital market
There are multiple schemes available to international investors who wish to access the Chinese onshore capital market, and these channels are undergoing a continual process of evolution. Clear evidence in this respect was the decision firstly in June 2020 to remove all quotas from the QFII and RQFII schemes, which was followed in November 2020 by the formal merging of these schemes into a single Qualified Foreign Investor (QFI) scheme, relaxing and broadening access via this channel.
Since 2014, schemes have been set up to link the Hong Kong and mainland China capital markets. The first was the Shanghai–Hong Kong Stock Connect which was established in 2014, followed by Shenzhen–Hong Kong Stock Connect established in 2016, and Bond Connect in 2017 for fixed income instruments.
The “connect” schemes offer an alternative access channel to QFI, for investment funds looking to invest in shares listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE), or cash bonds. On 28 November 2014, Luxembourg’s financial regulator, the CSSF, granted the first authorisation allowing a Luxembourg UCITS to trade through Stock Connect. A fast-track procedure for filing these applications with the CSSF applies to all Luxembourg UCITS whose investment policy already permit exposure to A-shares. These UCITS need only to adapt their prospectus and Key Investor Information Document (KIID) to meet CSSF requirements for authorisation in order to access the Stock Connect.
Luxembourg has been successful in attracting asset managers to domicile their China-focused investment funds in the country. Excluding Chinese domestic funds, it represents the largest domicile for investment funds investing into Chinese capital markets in terms of assets under management, attracting 45.8% of assets globally, and 80.3% of assets in a European context.
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