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. Raifs alone have increased their assets to US$458.4 billion, marking a 38.6% rise from last year’s US$330.8 billion. Another category of unregulated funds, LuxLPs and Soparfis, clocked in a 45.0% increase, bringing their total to US$681.4 billion.
«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 US$6,685.3 billion in 2021 to US$5,395.0 billion in 2022, a decline of 19.3% in US Dollar terms. 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 US$108.3 billion, 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 (US$1,079.3bn) followed by J.P. Morgan Bank in second position (US$826.2bn) and BNY Mellon (US$363.9bn) ranked third ahead of Caceis (US$357.4bn) in fourth.
Regulated vs unregulated funds in Luxembourg in 2022
