Concerning Luxembourg’s investment funds future, it is essential to emphasize the consequent changes. Industries cause radical changes. Moreover, economic, demographic, technological and regulatory forces hinder the process of evolution.
Investment fund Paradise
The Luxembourg tax environment favours the development of investment funds with a high level of investor protection. It’s important to note the speedy application of the European UCITS directives, and the absence Tax on investment funds.
Many investment structures offer considerable flexibility to portfolio managers through various vehicles.
The country is now leading a strategy to create funds dedicated to European start-ups’ financing.
A few decades ago, the wealth of the Grand Duchy came mainly from its steel industry. In the years 1960, Luxembourg opted for an industrial diversification focused around three axes: the construction of the European Union, the development of other sectors of activity and the development of an international financial center.
This political and industrial strategy has led to the creation of all sizes industrial companies operating in multiple sectors. Subsequently, Luxembourg focused on financial services whose beginnings were marked by the arrival of American, German and Swiss banks.
Luxembourg investment funds in Europe
Luxembourg is today the First Investment Fund center at the European level and the second at the world level after New York. Three out of four investment funds on a large scale at international level are situated in Luxembourg. The activity generates a quarter of the national GDP and employs 13,000 people (43,000 for the entire financial sector).
In addition to the fund activity, this financial position offers other services such as private management and reinsurance, areas in which Luxembourg also places itself as one of the European leaders. Above all, Luxembourg has been able to create a tax and regulatory environment for the best possible identification of investors ‘expectations.
Luxembourg is the First Investment Fund center from the European level and the second at the global level.
In 2012, the number of Luxembourg investment funds grew by 4.8% to reach 3,833 funds. And NET emissions reached 16,998,000,000,000 euros.
The Luxembourg financial market, in which the fund sector plays a key role, remains one of the drivers of the Luxembourg economy with more than 43,000 direct jobs in financial sector companies, including 13,000 for the fund sector.
In order to support the sustainable development and diversification of its economy, Luxembourg
Government initiated two projects of funds:
- Life Science fund, in which Luxembourg government will place some 20 million euros, is a fund dedicated exclusively to biomedical technologies.
- Luxembourg Future Fund, set up at the request of the Luxembourg Government, has as its object to support the sustainable diversification and development of the Luxembourg economy by helping to attract to Luxembourg, directly or indirectly, entrepreneurial activities in the start-up and development phase or activities contributing to innovation.
Evolution of Luxembourg investment funds
Luxembourg can take pride of its investment importance’s continuous rise. In 2017, assets under management concerning the country’s funds are equivalent to 4.037 trillion.
Two trends are relevant, on a short and long term, to indicate a continuous increase for the next ten years.
At present, the banks’ ability to issue loans reduced the stricter regulation and accumulated capital requirements on usual lending banks.
Recently it created a distance in the financing market. This fact, in association with the yield search in a low interest rate sector, helped investors to seek to change their assets. The rapid increase of non-only debt funds in Luxembourg, but generally in Europe in general illustrates this development.
Moreover, the increase of investment funds is provided by shortcomings in the legal framework of pension provisions.
Investment funds present eventually a workable issue to diversify the rising challenge of the pension gap. This gap has to provide a correct living standard after retirement age.
PEPPR or Pan-European Pension Product Regulation
The recent PEPPR’s aim is to present a “European 401 account”. This regulation is supplied by fund managers, insurance companies and banks.
The “PEPP” represents a “wrapper-product” concerning personal retirement products. The “PEPP” always include the “PEEP schemes” which correspond to “balanced funds” and “target date funds”. These schemes concern as well “life-cycle funds”. Those different funds are prepared for a “capital preservation”, moreover, they have to comply with the “prudent-man principle”.