The Association of the Luxembourg Fund Industry (ALFI) is turning 30 this autumn. The association was formed in 1988 with the purpose of representing and promoting the fund industry of the Grand Duchy. The anniversary will be celebrated at the ALFI Global Distribution Conference, which takes place at the European Convention Center Luxembourg on 25 and 26 September 2018. The evening of the second conference day will be dedicated to the association’s jubilee, putting in the spotlight a topic close to ALFI’s heart: investor education. Ensuring financial literacy beyond the finance community, across generations, and making the general principles of investing known to all is essential both for people’s economic well-being and the robustness of the financial market.
ALFI chairman Denise Voss, says: “Ensuring financial literacy beyond the finance community, across generations, and making the general principles of investing known to all is essential both for people’s economic well-being and the robustness of the financial market.”
Three decades of ALFI coincide with three decades of UCITS. A pioneer from the start, Luxembourg was the first member state, on 30 March 1988, to transpose the UCITS Directive into national law—an important step that helped establish the country as a leader in the field of investment funds globally and build its reputation for reactivity. The creation of a unique funds infrastructure and development of comprehensive expertise meant that Luxembourg was soon recognised as a centre of excellence for cross-border funds in Europe and the world. UCITS—well-regulated, stable and with their significant level of investor protection—went on to become an unrivalled premium brand that combines efficiency and reliability and still remains the only widely accepted true cross-border fund model. Today, two out of three UCITS distributed internationally are domiciled in Luxembourg, and investors from more than 70 countries in Europe, Africa, Latin America, the Middle East and Asia have entrusted in excess of €3,500 billion to Luxembourg UCITS.
In addition to the success story of Luxembourg UCITS, the fund association has also witnessed impressive growth rates of private equity and real estate funds. The entry into force of the Alternative Investment Fund Managers Directive (AIFMD) in 2013 has led to further increasing assets in Luxembourg-domiciled alternative funds.
The fund centre is also intent on flying the flag for sustainable investing. Environmental, social and governance (ESG) funds that invest in accordance with certain environmental, social and governance criteria have been on the rise for years.
ALFI helped to position Luxembourg early as a specialist domicile for responsible finance. Since 2010, the assets under management of sustainable funds in Europe have nearly doubled, amounting to €476 billion euro at the end of 2016. Green and climate funds, in particular, are developing at considerable speed. Luxembourg domiciles 38 percent of European responsible investing (RI) funds and 45 percent of their assets managed.
In celebrating its 30 years, ALFI can look back on the establishment (and subsequent evolution) of its three flagship conferences—the September Global Distribution Conference that focusses on Luxembourg’s core competency is complemented by the European Asset Management Conference, held each spring as per tradition, and the most recent addition to the trio, the PERE conference that caters to asset managers in the alternatives sphere and highlights Luxembourg’s structuring and operational excellence benefitting funds that target these two asset classes.
Outside Luxembourg, ALFI is very active too. Its successful practice of hitting the road to showcase the Grand Duchy’s advantages for investment funds began in 2005 with its first roadshows in London, Frankfurt and the US—the beginning of an intense global promotion agenda and travel itinerary. The opening of representative offices followed: in Brussels in 2006 to bring the industry perspective to the heart of the EU, and in Hong Kong in 2010, acknowledging the fact that Asia had become the main market for UCITS funds outside Europe.
Milestones furthermore include the introduction of the ALFI code of ethics in 1998, providing a framework of high-level principles and best practice recommendations for the governance of Luxembourg investment funds. The matter of investor education figured prominently on the industry’s agenda in 2015, when ALFI launched www.understandinginvesting.org, which was designed to provide the general public with useful basic information about investing.
The Luxembourg fund industry first achieved the landmark of being the largest investment fund centre in Europe in 1999, a position it regained in 2005 and has held ever since. In 2011, it also became the second-biggest domicile for non-UCITS in Europe. The implementation of AIFMD in 2013 and the launch of the Luxembourg RAIF, the Reserved Alternative Investment Fund regime, followed.
The first LuxFLAG label for ESG funds was launched in Luxembourg in 2014. At the end of last year, the assets under management in Luxembourg surpassed €4,000 billion, merely three years after the €3,000 billion mark.
The impact of regulatory developments on the fund business is a core preoccupation of ALFI. Of particular importance are current EU initiatives in the framework of the Capital Markets Union, which offer exciting opportunities for UCITS to evolve. In this context, ALFI notably welcomes the ambition to remove remaining barriers to cross-border distribution.
The increasing need for individuals to take responsibility for their own long-term financial security means that the pan-European Personal Pension product (PEPP) is also especially interesting. These continued harmonisation efforts are a trend that is seen alongside an opposing concept of protectionist elements facing markets generally, with Brexit one expression of this.
Technological developments not only continue as a standing item on the agenda, but fintech accelerators like blockchain technology and its many uses in the fields of cryptocurrencies, crowdfunding and digital distribution along with artificial intelligence and robo-advice are fast and fundamentally changing the face of the financial sector. A common observance in the industry is that former niche investment policies are becoming mainstream. Alternative investment funds for example, such as those investing in real estate or private equity, were considered specialist products just a decade ago. Today, many fund houses count property funds among their portfolio as a matter of course. Similarly, regard to ESG factors is no longer “nice to have”, but something that investors expect—and expect to be evidenced.
Committed to ensuring these and other expectations of increasingly demanding investors are met, ALFI will continue to advance Luxembourg’s position as the international fund centre of reference, recognised as open, reliable and innovative by investors, policymakers and industry alike.
This is achieved by promoting practices that align the interests of investors and industry, articulating the essential role of investment funds for the global economy, connecting investors with market opportunities worldwide and stimulating innovation, research, talent development and education. And innovations keep on coming—in line with its innovative approach, the association will carry into the future its purpose of helping its members adapt to change and thereby ensure Luxembourg investment funds can fulfil their potential of serving the investor and the economy.
