Asset Management in Luxembourg Post-COVID-19

Asset Management in Luxembourg Post-COVID-19 ( Photo: © Copyright State Street Corporation )

Asset Management in Luxembourg Post-COVID-19 ( Photo: © Copyright State Street Corporation )

Over the 30 years that State Street has been present in Luxembourg, the Duchy has grown into Europe’s preeminent centre for cross-border fund distribution, throughout the continent’s nascent Capital Markets Union area, and beyond.

This success story is down to the scale and quality of business and market infrastructure located in Luxembourg, with every link in the financial services chain working side by side in the city.

As Luxembourg continues to grow as an asset management centre – and as State Street continues to grow in Luxembourg –, this complex financial services ecosystem will evolve as technology-driven improvements to operating models and challenges like the market crisis of 2020 drive changes.

One thing that will remain consistent in this evolution is the importance of collaboration and networks of organisations providing one another with expertise and vital services.

The experiences of this year nevertheless have provided asset managers with a series of lessons about their internal models and external partnerships, which point to some key ways in which their provider networks might develop in the future.

This autumn, State Street conducted a survey of more than 600 investment institutions worldwide [1] , including 91 European asset management organisations, in which we asked them how their experiences of the crisis have affected their long-term thinking about operational transformation and outsourced service provision.

One interesting feature of the results was the focus on consolidation and security by European asset management companies, as they assess their post-COVID-19 futures.

For example, 45% said they were likely to engage in a merger or acquisition deal in the next 12 months, a long-standing trend in the asset management industry in Europe and worldwide, but also an indication that the scale and diversification that mergers and acquisitions (M&A) bring are advantages in a difficult market and economic environment.

This outcome was further backed by more than half (53%) of European managers saying they plan to consolidate and reduce the number of outsourcing partners they use “to focus on deeper, more strategic relationships”.

Currently, when asked whether they “outsource to different technology providers” or “outsource to one or two strategic partners”, European asset managers overwhelmingly prefer the first option to the second with 48% against 21% in the back office, 68% against 18% in the middle office and 44% against 10% in the front office (the remainder use “mainly in-house systems” in each area).

This new trend most likely represents an increased recognition of the importance of giving responsibility for business areas to robust, financially secure partners with the scale to apply significant additional resources to projects in crisis situations.

Interestingly, two thirds (66%) also cited a commitment to corporate sustainability, keeping with the current tendency in financial services for organisations to integrate ESG across all their business areas.

This reordered focus on robust partners and more rapid technological development that COVID-19 has prompted will play into the hands of a finance centre like Luxembourg, which has always been at the forefront of Europe for collaboration, expertise and innovation.

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[1] State Street engaged Longitude Research to field this global survey during September and October 2020. The 618 respondents were composed of senior, decision-making executives at asset managers, pension funds, insurance companies and other asset owners in 24 countries. 

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