Raymond Frenken

For a second time in two years, investment fund managers have been ordered to directly report significant redemptions as the CSSF, the Grand Duchy’s financial supervisor, stepped up its monitoring of the impact from the war in Ukraine and the international sanctions against Russia.

The financial industry often baulked at the tens of billions of euros it pays for EU’s comprehensive regulation framework put in place post 2008 financial crisis. With markets in turmoil over Russia-Ukraine, that tone now is different.

Also as international funds hub, Luxembourg finds itself exposed to the economic fallout from Russia’s war against Ukraine. Hundreds of investment funds with assets in Russia’s financial markets are making extra efforts to keep clients abreast about the financial impact of international sanctions. Dozens of funds have already been suspended and from Wednesday, European stock exchanges have banned all trade in Russian securities.

Global commodity markets are watching the unfolding war in Ukraine with trepidation amid broad expectations the violent conflict will result in shortages for anything from aluminium to zinc. One global market, grain, is particularly vulnerable, as Russia and Ukraine together account for a very significant part of global production of wheat and barley. Wheat prices already reached a ten-year high this week.

Luxembourg fully supports the European Union’s additional sanctions against Russia over its aggressive move towards Ukraine but supports a cautious approach with the EU’s plans to eject Vladimir Putin’s country from the international payments system Swift. If that happens Russia will in essence be cut off from the world economy.

Global financial markets were in turmoil on Thursday in a clear sign that investors had not expected Russian President Vladimir Putin to make an aggressive move into Ukraine by launching a full-scale invasion.

“Even just yesterday people were dismissing this as unlikely,” well-known economist and Fed watcher Mohamed El-Erian, advisor at the Allianz & Gramercy said. “This is way beyond anything. This is a very unsatisfactory situation.” 

Luxembourg Raifs appeal to clients worldwide, January data from its business register shows. QIC, the Queensland Investment Corporation in Australia, issued an infrastructure investment Raif together with Carne Global. Ocorian supported Singapore-based SilkRoad with a new real estate fund.

Luxembourg has a promising potential to further build on its global hub status for investment funds by encouraging management companies to expand their businesses into international fund distribution, according to Xavier Parain, CEO of FundRock, Luxembourg’s largest third-party manager of investment funds.

The European Securities and Markets Authority (Esma), the EU’s securities markets regulator based in Paris, said on Tuesday that it continues to see high risks to institutional and retail investors of further, possibly significant, market corrections. 

Supervisors ESMA and EIOPA are “closely monitoring” cyber risks in Europe’s asset management industry amid concerns that rising tensions over Ukraine may spark Russian-backed cyber attacks on Europe’s economic infrastructure.