Sara Gilbert (Northern Trust): Luxembourg’s alternatives success story
Luxembourg’s growing influence as a leading alternative investment funds hub is being driven by the multiple solutions it provides to global investment managers supported by its strong reputation and support infrastructure. Sara Gilbert, Northern Trust’s senior executive for alternatives business development, outlines the attributes helping Luxembourg to excel in this important fund sector.
Are alternative funds playing an increasingly important role in Luxembourg’s overall funds industry?
Despite the financial turbulence caused by the COVID-19 pandemic, Luxembourg continues to retain its status as the leading global centre for cross-border funds.1 Assets under management recovered to €4.6 trillion at the end of August 2020, nearing January’s record peak.2 Whilst alternative assets under management represent a relatively small percentage of this tally compared to traditional UCITS funds, they are on a strong growth trajectory. The Association of Luxembourg Fund Industry’s (ALFI’s) annual 2019 survey reported robust growth rates across private equity (19%), private debt (14.5%) and real estate (17.7%) – this was almost double the growth rate for Luxembourg UCITS.3
“Despite the financial turbulence caused by the COVID-19 pandemic, Luxembourg continues to retain its status as the leading global centre for cross-border funds”
What attributes make Luxembourg an appealing jurisdiction for alternative funds?
As the above figures illustrate, Luxembourg is fast becoming a domicile of choice for alternative investment funds. Combining a flexible fund structuring toolkit with its cross-border fund distribution prowess, it has a robust reputation and experienced servicing infrastructure. Luxembourg offers a diverse regulatory framework across the spectrum of private equity, debt, real estate and infrastructure to meet the needs of fund promoters, managers and investors. Investment managers can choose from a wide range of legal entities to suit their assets under management, size, strategy and end investor base. As a leader in cross-border distribution, Luxembourg offers a strong foundation to support complex global investment strategies. Northern Trust has been helping a number of managers benefit from Luxembourg’s Reserved Alternative Investment Fund (RAIF) vehicle. Introduced in 2016, the RAIF has been pivotal in Luxembourg’s alternatives success story, with over 1000+ established since its inception.4 It’s a swift to market, flexible and multipurpose fund regime enabling investment in a range of assets suited to alternative investment funds. Specifically designed for alternative funds aimed at institutional and sophisticated investors, it offers many of the features available to regulated funds with a reduced regulatory burden. While unregulated by the Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier (CSSF) it must still be managed via a regulated Alternative Investment Fund Manager (AIFM) and appoint a Luxembourg based regulated administrator, an AIFMD compliant depositary and independent auditor. This helps to reduce time to launch and gives access to the EU passport for distribution to eligible investors. Luxembourg also offers broad sector-relevant expertise in areas such as administration, custody, depositary, legal, audit, compliance and risk from a pool of multi-lingual investment fund professionals. This gives managers access to all the cross-border fund expertise in a single location.
How is Northern Trust supporting this trend?
Northern Trust services worldwide more than US$1.5 trillion in alternative assets for asset managers and asset owners.5 Over the past 12 months we have supported a number of investment managers to launch alternative funds in Luxembourg through our provision of fund servicing solutions including fund administration, custody and depositary services. Our local team works closely with our specialist hubs in the Americas, Europe and Asia, giving our clients flexibility to grow and evolve their strategies.
Source: Association of Luxembourg Fund Industry (ALFI) Rentrée Conference (14-18 September)
Source: As reported in ALFI 2019/2020 Annual Report
Source: ALFI as of 31 August 2020
Source: Northern Trust as of 30 June 2020