According to a recent study by Monterey Insight, Luxembourg’s fund landscape is undergoing a seismic shift. The 29th edition of the Monterey Insight Luxembourg Fund Report reveals that unregulated funds are outperforming their regulated counterparts in a big way, signalling a potential paradigm shift in the industry.
Unregulated funds, especially reserved alternative investment funds (Raifs), have seen a surge in asset value during 2022. Raifs alone have increased their assets to the equivalent of 458.4 billion dollars, marking a 38.6% rise from last year’s 330.8 billion dollars, said Monterey. Another category of unregulated funds, LuxLPs and Soparfis - which mostly hold real estate investments - clocked in a 45.0% increase, bringing their total to 681.4 billion dollars.
“Unregulated funds have attracted more interest and increased their asset value by 40%, while regulated funds have declined by 19%,” said Karine Pacary, Managing Director at Monterey Insight. She noted that private debt, private equity/venture capital, and property/real estate were the best-performing sectors among unregulated funds.
Tough year for regulated funds
In stark contrast, regulated funds faced a decrease in total net assets from 6,685.3 billion dollars in 2021 to 5,395.0 billion in 2022, a decline of 19.3% in US Dollar terms, Monterey said. Within this category, Ucits funds faced the most significant drop, a reduction of 22.2% in their asset value.
The number of unregulated funds also rose by 30.2%, with 5,436 funds and sub-funds registered this year compared to 4,175 in 2021. Interestingly, new unregulated business reached 108.3 billion dollars, signalling a significant appetite for these types of investment vehicles.
Sustainability trends
EU Sustainable Finance Disclosure Regulation (SFDR) data indicate a growing focus on sustainability in fund choices, both regulated and unregulated. Newly launched funds under SFDR Article 8 and Article 9 saw a respective increase of 38.5% and 8.7%, hinting at a more eco-conscious investment strategy.
J.P. Morgan retained its position as the largest promoter/initiator of Luxembourg regulated schemes, with assets worth US$392.6 billion, followed by Amundi and DWS International. However, as the landscape shifts towards unregulated funds, service providers in alternative investments are benefitting from strategies in the alternatives segment.
The top positions remain unchanged for fund administration ranking: State Street is first by total net assets (1,079.3 billion dollars) followed by J.P. Morgan Bank in second position (826.2 billion dollars) and BNY Mellon (363.9 billion dollars) ranked third ahead of Caceis (357.4 billion dollars) in fourth.
State Street leading custodian
In the realm of custodians and depositaries, State Street once again takes the lead, holding assets under custody amounting to 1.083 trillion dollars. It is closely followed by J.P. Morgan Bank, which has 959.7 billion in assets under custody. In a surprising turn of events, BNP Paribas ascends to the third position with 427.7 billion, overtaking Caceis, which holds the fourth spot with 411.1 billion.
When it comes to transfer agent rankings, IFDS/State Street holds the top position with 1.048 trillion in assets, followed by J.P. Morgan Bank with 556.6 billion. J.P. Morgan Bank displaces RBC Investor Services Bank, which drops to third place this year with 455.8 billion in assets, while Caceis trails closely behind in fourth position with 438.4 billion.
In the auditing sector, PwC continues to dominate with a total audit count of 6,264 sub-funds, maintaining its leading position for multiple years. EY makes waves this year, securing second place with 2,771 sub-funds audited, pushing KPMG to third place with 2,313 sub-funds. Deloitte retains its fourth-place position, auditing 2,249 sub-funds.
Regulated vs unregulated funds in Luxembourg in 2022
