Gregory Kennedy

On September 23rd, residents of the Gare district protested against the escalating levels of insecurity in their neighbourhood. While residents bear the brunt, asset managers, their clients, and employees are also affected by the increasing anti-social behaviour in the area.

The typical reasons that prompt asset managers to acquire new software often include recommendations from regulators following an onsite visit or the realisation that their current resources cannot efficiently handle projected workloads. These decisions are predominantly reactive, seldom proactive, writes Gregory Kennedy in his latest column for Investment Officer Luxembourg.

It was 2020, and there were countless stories of young investors becoming millionaires overnight by investing in cryptocurrencies like Bitcoin. I didn’t want to miss out, so I decided to invest a modest amount of 2500 euros.

Curiosity

The possibility of becoming a millionaire was enticing, but I also saw this as a way to educate myself about a ‘new’ concept called blockchain. This technology was the foundation of cryptocurrencies and was set to transform countless industries.

Urban Angehrn, the former chief executive of the Swiss financial regulator, FINMA, recently stepped down, citing the toll on his health from “permanent stress levels,” months after orchestrating the rescue of Credit Suisse by UBS. However, it is not only people in high-profile jobs who experience burnout.

A few years ago, a younger version of myself also experienced burnout.

In May 2022, Stuart Kirk, head of responsible investment at HSBC, assured investors that they need not worry about climate risk. “Climate change is a not a financial risk we need to worry about,” he argued. He also expressed his dissatisfaction with the heavy workload that sustainable regulations imposed on his department.

An inconvenient truth about the financial industry is that it cannot be trusted; there have been too many scandals to remember. Common solutions, such as rules and regulations, no longer seem to be improving trust, necessitating the exploration of new measures.

Trust

A positive correlation exists between economic growth and trust; people who trust each other are more likely to engage in transactions together. The purpose of rules and regulations is to foster trust among economic participants so that they can transact securely.

On December 22nd, 1972, investment funds in Luxembourg became subject to supervision for the first time. Initially, the rules provided investors with significant protection, but over time, they have only served to increase the fees they pay.

Delegation

Delegation is one area of the industry that has become so complex that it’s almost impossible to see the bigger picture. It’s a cornerstone that has facilitated the industry’s growth while also making it increasingly obscure.

It was June 2014, and I was flying back from Lisbon for an exciting interview at J.P. Morgan Bank Luxembourg. Landing this job would validate that getting a master’s degree was worth it. I was thrilled about being part of our fund industry.

There could be no delays in my travel plans. I was scheduled to land at 13:15, and the interview was set for 14:00. Fortunately, a friend picked me up, giving me enough time to put on my suit and share my excitement about interviewing for a leading bank.

According to research, a typical board director in the Luxembourgish fund industry is a 53-year-old European man with 22 years of work experience (who probably plays golf). Their role is to ensure investors avoid the rough and get to the green safely. 

Failure results in a penalty stroke from the CSSF.

One of my first lessons in finance was that you cannot consistently outperform the market. When it does occur, it is the result of luck rather than skill. You are better off investing in passively managed funds than those actively run by gurus and clairvoyants.