THE WORLD’S LEADING ASSET MANAGERS HAVE CHOSEN LUXEMBOURG AS THE BUSINESS HUB FOR THEIR INTERNATIONAL FUND RANGES. A NUMBER OF FACTORS HAVE CONTRIBUTED TO THIS PHENOMENON BUT TWO STAND OUT: THE FINANCIAL CENTRE PROVIDES UNRIVALLED INTERNATIONAL EXPERTISE AND A VERSATILE, TRIED AND TESTED TOOLBOX OF INVESTMENT VEHICLES.
WE SPOKE TO A HANDFUL OF INTERNATIONALLY ACTIVE ASSET MANAGERS AND SERVICE PROVIDERS TO ASK HOW LUXEMBOURG CATERS FOR THEIR NEEDS AND HOW THIS IMPACTS THEIR OPERATIONS.
For DWS, the Luxembourg financial centre played an important role in setting up a global distribution network.
DWS has been taking advantage of the introduction of the UCITS brand for more than 30 years.
“DWS has been taking advantage of the introduction of the UCITS brand for more than 30 years,” says Barbara Schots, Managing Director of DWS Investment S.A., an independent asset manager that is majority owned by Deutsche Bank as its largest shareholder.
“The aim was to develop a broad range of funds for wide distribution and to be close to our clients. The positive business relationship with the Luxembourg regulator CSSF was also recognised as key to client service, by providing a good time to market for Luxembourg funds.”
DWS is currently the second largest management company in Luxembourg by assets under management and is a key hub for the DWS group, which has more than 460 funds based in the Grand Duchy. The group has EUR 719 billion under management globally, of which EUR 492 billion is managed in Europe.
From the Grand Duchy, DWS operates a broad range of fund portfolio activities across its active, passive and alternative businesses. It is licenced as a “Super-Manco”, meaning the company offers both UCITS and alternative investment funds to a wide base of institutional and private
UCITS have become synonymous with global distribution: when you say UCITS, people think Luxembourg.
“Covering the full fund spectrum is a clear advantage in an environment of negative interest rates and fee compression.”
The Grand Duchy plays a central role in DWS’s global strategy.
“For DWS, the financial centre played an important role in setting up a global distribution network. Luxembourg funds are in high demand from investors, intermediaries and distributors, so we were able to establish relationships with a large number of distribution partners over the years. Similarly, it acts as one of our two major hubs for client account servicing.”
SERVING A MULTI-BOUTIQUE STRATEGY
Generali Investments Luxembourg SA (GIL) is the investment specialist of the Generali Group which is one of the largest insurance companies in the world and a leading European asset manager. Generali manages investments on an international scale and handles the development and distribution of both UCITS and alternative investment funds on behalf of the Generali Group’s international network of insurance companies.
“Luxembourg has significant international exposure. UCITS have become synonymous with global distribution: when you say UCITS, people think Luxembourg. It is much easier to enter certain markets with a Luxembourg UCITS because they were the first mover. The local regulator knows us and knows the product,” explains Pierre Bouchoms, General Manager.
In a competitive environment, specialisation is the key to success. Generali is providing customers with an innovative suite of investment solutions, based on a multi-boutique approach.
“Luxembourg plays a central role in this new strategy. We launched the Generali Investments SICAV from Luxembourg for the Generali Group’s boutiques with experts in asset management from various locations. Today, the fund is registered in more than 10 countries,” he explains.
Currently, fund promoters from 67 countries use Luxembourg funds to reach global investors and Luxembourg UCITS are sold in over 70 countries around the world.
Given the low interest rate environment and the uncertainty in the equity markets, and looking at long-term liabilities, the alternative world is clearly where you will find better returns.
“The fact that Luxembourg funds are already registered in many countries makes life much easier, especially with the multi-boutique strategy. The funds we are setting up for those asset managers tend to have a more global distribution, so in the coming months we will significantly extend our global footprint. Offering a Luxembourg product is a key element in this strategy.”
FUND PASSPORTING FOR INTERNATIONAL REACH
Passporting is also central to the activity of DWS Luxembourg, both in the UCITS and the AIFM space.
“Luxembourg has broad distribution capability supported by its ability to passport to a large number of domiciles. We recently launched French AIFs and became the management company for some large Irish funds in 2018,” continues Schots.
“The fact that activities can be concentrated in one location enables us to build up our expertise on European regulatory frameworks, choose the best domicile and fund structure for our clients and run operations in a consistent manner from the top down,” she adds.
The same goes for Generali which is making full use of the fund passporting available for UCITS and AIF and is managing an AIF in France and a UCITS in Germany.
ALTERNATIVES GOING MAINSTREAM
Today, UCITS still hold a majority of the assets under management held by Generali Investments Luxembourg (GIL) but a rebalance of its portfolio is expected in the next few years.
“We are setting up more and more alternative products. We have launched many real estate funds, private debt funds and are going to launch hedge funds in the near future. Given the low interest rate environment and the uncertainty in the equity markets, and looking at long-term liabilities, the alternative world is clearly where you will find better returns,” says Pierre Bouchoms.
For him, it is a natural next step for the country to become Europe’s alternative investment hub. “If you look at the ecosystem we’ve been able to develop for the UCITS world, little by little, we are replicating this experience in the alternative space. Major players are setting up in Luxembourg while service providers are improving their services for AIFs. Even at the level of the regulator, there is increasing scope to authorise alternative funds.”
A 24/7 SERVICE
The American bank Brown Brothers Harriman (BBH) has been present in Luxembourg since 1989, supporting asset managers at the time of the first UCITS funds. Today, BBH is one of the top third-party custodians and administrators in Luxembourg, serving international asset managers from the US, Europe and Asia.
“Our first client had just arrived in Luxembourg at that time and so we said: « why don’t we do this together?”, explains Jean-Marc Crepin, Co-Head of Brown Brothers Harriman Investor Services EMEA and supervising Partner of BBH Luxembourg and BBH Ireland. “Our clients are at the centre of everything that we do. We strive to help asset managers expand globally through Luxembourg and the UCITS brand is unbelievably powerful in supporting their global distribution strategy. Our Luxembourg business is now at the cornerstone of the group’s global strategy and represents a large portion of our revenue.”
From Luxembourg, BBH helps its clients manage the complexities of cross border fund servicing. Crepin values Luxembourg’s unique asset management ecosystem, which knits together the institutions, infrastructure and regulatory expertise needed for the success of the industry.
“There is a significant strategic alignment between the regulator, the industry and the investors to translate the objectives of the regulator and the legislator into something that makes sense for the investor. The authorities have a real appetite for understanding the sector.”
There is a significant strategic alignment between the regulator, the industry and the investors.
Luxembourg is becoming the conduit through which high-quality FinTech companies bring back value to asset managers.
Different time zones do not constrain fund administration activities in Luxembourg. For BBH, this pragmatism has been a key asset in supporting its global activities. “Luxembourg was the first to understand how to sell funds successfully in Asia. If you tried to do every single activity in Luxembourg, the net asset value of the fund would be obsolete by the time it got to Asia. Having the opportunity to have contract notes sent out from the US and to use the end of the US day, has been a significant advantage in global distribution.”
As a global custodian, delivering the highest possible quality level of data will be an important competitive advantage in the future.
AN INNOVATION AND FINTECH HUB
“As a global custodian, delivering the highest possible data quality will be an important competitive advantage in the future,” continues Jean-Marc Crepin.
BBH sees technology as a key enabler for broadening its international client base and is fully embracing a culture of innovation to develop new technology solutions for its clients.
“Data is key to the value that service providers can bring to clients. An optimal data strategy enables a higher level of flexibility in the operating model and provides the means to perform behavioural analytics so that asset managers, for instance, can analyse how their portfolio managers are performing and help deliver the best value to investors. The higher the quality level of data, the better the quality of decisions,” he points out.
Crepin has first-hand experience of Luxembourg’sdynamic FinTech ecosystem.
By putting high quality data at the core of all our products, we empower our clients to spot trends and act in real time.
“Luxembourg is becoming the conduit through which high-quality FinTech companies bring value to asset managers. This is extremely important for us as it enables us to evolve new products and respond more effectively to our clients’ needs.”
DWS is also putting innovation at the core of its strategy.
“Digitalisation is changing the world in both large and small ways, and we see this trend at work in the asset management industry as well,” comments Barbara Schots.
By giving the data back to the client, we can unlock the complexity and remove silos for any market.
As part of its broader digitalisation strategy, DWS has launched a digital investment platform out of Luxembourg named WISE. The platform provides its distribution partners with a tailored solution for automated, digital asset management.
Combining the digital and ESG worlds, DWS also recently took a stake in an ESG scoring company called Arabesque. This business uses machine learning and big data to combine over 200 ESG metrics with news feeds from 30,000 sources published in over 170 countries.
PUTTING FUND DATA TO WORK GLOBALLY
“Just as Luxembourg as a whole has welcomed digitalisation and aspires to grow through new technologies, we felt we had an opportunity to put fund data to work globally. We had a duty to our 300 plus clients to give them leading-edge data insights,” explains Neil Ward, CEO of Luxembourg-based FinTech, Kneip.
Kneip has been providing innovative data management solutions to the industry since 1993. The company continuously invested in new technology to simplify the complexities of fund data management and reduce the burden of regulatory demands. Its new digital service platform allows for more transparency, cost-reduction and accelerated time-to-market by facilitating digitalisation, and streamlining investor data and processes such as reporting.
“Our digital platform is designed to meet the growing need to de-duplicate data and data- based processes by offering a single platform managing the entire fund lifecycle from end to end in real time: from registration, quality data management and publication through to providing oversight. By putting high quality data at the core of all our products, we empower our clients to spot trends and act in real time,” he adds.
The platform is putting asset managers back in control of their data.
“This is the beginning of a new era for clients, who now have full transparency and control of their data. By giving the data back to the client, we can unlock the complexity and remove silos for any market, regulatory document, or piece of data that has to be disseminated to stakeholders in either direction.” Today, Kneip serves more than 10,000 funds in 6,500 destinations across 40 countries.
“It would have been difficult to define our strategy as acutely as we have in any other country. Luxembourg’s story as a secure, leading- edge global data hub is directly reflected by Kneip. We see global strengths through data and technology that weren’t available from a Luxembourg base five years ago.”
Luxembourg provides the brains. There is a high-level of knowledge and a high degree of specialisation that you can’t find anywhere else.
TALENT WITHOUT BORDERS
“Luxembourg provides the brains. There is a high-level of knowledge and a high degree of specialisation that you can’t find anywhere else. So, for funds, it becomes a very reliable brand to build around. For Kneip, the right place for us to place our bets and invest in our people is here,” explains Neil Ward.
Luxembourg’s international DNA is reflected at BBH Luxembourg which employs 400 people with 36 nationalities between them. 33 languages are spoken at the firm.
“For Luxembourg, the world is its oyster with outstanding connectivity to global resources. This is critical when servicing not just European, but global clients,” says Jean-Marc Crepin.
He sees investments in continuous training as a crucial asset for the future.
“Upscaling is the number one challenge and Luxembourg’s support for training is crucial to us. Ultimately, combining a continuous learning process with a stable workforce will be one of the conditions of success,” he adds.
This point of view is shared by Barbara Schots.
“We continuously strive to develop our workforce. The turnover of employees in DWS Luxembourg is very low, which is clearly a positive factor for the company.”
For Luxembourg, the world is its oyster with outstanding connectivity to global resources.