Gregory Kennedy

While tourists flock to locations steeped in history, investors take the opposite approach; they flock to locations focused on the future.

According to Nicolai Tangen, head of Norway’s sovereign wealth fund, Europe is less hard-working, less ambitious, more regulated, and more risk-averse than the US. Yet, the average European is also likely to live a healthier, happier, and longer life than the average American.

So why should Europe become more like the US?

“Fund managers are making record bonuses” is a headline often heard in London, Frankfurt, and Paris, but rarely in Luxembourg. While we dominate in back-office services, these jurisdictions excel in providing front-office services, an area Luxembourg’s fund industry needs to develop.

Over the past five years, the Luxembourg fund industry has experienced a slowdown in the growth of AUM and the number of funds, which has been detrimental to the economy. The solution is to grow the industry via horizontal or vertical integration.

Every now and then, my development team informs me that they need to take a pause from future developments to refactor code. Refactoring is a process where they restructure existing computer code without altering its external behavior.

Over time, small incremental changes to the software’s code base degrade maintainability, readability, and performance. The purpose of refactoring is to enhance code performance without affecting existing functionality, as a clean code base facilitates the addition of new features.

Ireland’s competitive tax policies and workforce have attracted numerous fund promoters, propelling the country to become the EU’s fastest-growing and second-largest fund domicile. Despite these impressive achievements, Ireland faces challenges in overtaking Luxembourg as the leading destination for funds.

The Grand Duchy of Luxembourg accounts for 36% of UCITS assets globally, indicating numerous advantages to domiciling an investment fund here. However, as the investment landscape evolves, its competitiveness is diminishing, particularly in comparison to jurisdictions such as Ireland.

Expecting firms covered by DORA to possess the skills, time, and capacity to function as ICT experts is yet another regulatory demand that offers little in terms of investor protection. The added layers of control imposed on investment firms are poised to escalate costs far more than they bolster safeguards.

A thriving fund industry rests on the foundation of a robust regulatory framework, assuring investors that their assets will be safeguarded against misappropriation. Nevertheless, the pursuit of greater protection often accompanies higher fees, prompting investors to scrutinise regulatory requirements for tangible and effective outcomes.

Since its implementation in 2021, the EU Sustainable Finance Disclosure Regulation (SFDR) has successfully redirected flows from non-ESG funds to ESG ones. In Luxembourg, over 50 percent of Ucits funds are now classified as either an Article 8 or 9 fund, marking a significant surge in sustainability-focused investments.

On the 4th of September 1996, Luxembourg signed its most recent tax treaty with the United States of America. According to that agreement, Lux-based ETFs pay a 30% withholding tax on income received from US securities, as opposed to the 15% paid by their Irish counterparts.