PLACE FINANCIÈRE & MARCHÉS — Fonds

Comment l’écosystème des fonds luxembourgeois a bien souvent boosté les fonds d’investissement auprès du régulateur, des institutions?

“Infrastructures foster fund industry innovation”


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Luxembourg’s wise strategy to create financial infrastructures and cost mutualization has been key to the country’s competitiveness and success in cross-border fund distribution. In the age of digital transformation, this strategy strengthens its leading position.

As the world’s leading centre for cross-border fund distribution, Luxembourg boasts a unique and highly competitive platform for investment funds.

Integral to its success is a large group of companies that serve the country’s fund industry. These include fund administrators, distributors, law firms, transfer agents, depositary banks, auditors and accountants, as well as consultants and advisors.

In this list we should also include the role that specialised IT and communication firms have played. In particular, one significant but often overlooked factor in the growth and success of this ecosystem is the infrastructure that has grown over many years and which generates economies of scale for the benefit of all actors, especially in information exchange.

An adaptable, efficient fund ecosystem

Luxembourg took the first steps in addressing the need for efficient and cost-effective cross-border information exchange more than twenty years ago with an initiative from ALFI, the Luxembourg fund association, to create a centralising communication agency for investment fund information dissemination. With a focus on industry-wide cost mutualization and industrialisation of data, CCLux was created with the support of the Luxembourg Stock Exchange and commenced with the transmission of NAVs for publication around Europe, as well as certain regulatory reporting to the CSSF and BCL for local funds.

What is now evident is the importance of the relationships between these data and information flows.
Julien Renkin

Julien Renkin,  Head, Client Solutions & Project Management,  Fundsquare

This was the start of building links, initially between fund administrators and the supervisor, which would expand to all types of information for many actors. It would eventually cover the full range of dynamic data, static data, fund documents and regulatory reports.

However, at first these were viewed as separate activities, mirroring both the silo-based internal workings of fund companies at the time and the obligations of specific regulatory requirements. What is now evident is the importance of the relationships between these data and information flows. The common point of regulators, fund industry actors and investors is their need for quality information delivered at the right time to the right recipient. It is here that technology began to play a fundamental role.

An infrastructure creates value and competitiveness

In today’s environment, infrastructures must provide opportunities for their participants to be flexible and effective. More than just the “plumbing”, an infrastructure that is positioned at the heart of the investment fund industry can respond to the needs of all actors in the ecosystem.

Primarily, an infrastructure allows for cost reduction throughout the industry, initially by the simple method of cost mutualization and common standards. But beyond this, it provides a common base for the entire industry to innovate and grow. An infrastructure can do this by investing in wide-ranging and long-term technology initiatives that are for the benefit of its industry as a whole.

This long-range view is essential if the fund industry is to respond to current and future challenges. With its central position, an infrastructure has a unique understanding of strategy and how to realise it.

From the point of view of an investment fund infrastructure, dynamic data, static data and documents are just components of the flows between all actors.
Julien Renkin

Julien Renkin,  Head, Client Solutions & Project Management,  Fundsquare

From the point of view of an investment fund infrastructure, dynamic data, static data and documents are just components of the flows between all actors. Reporting to authorities and information dissemination to the distribution chain are two facets of the same process. With this in mind, Fundsquare commissioned a study in 2015 which estimated that, by correcting existing inefficiencies, distribution costs could be cut by some 70 percent.

An integrated, holistic approach to investment fund data and regulatory needs provides much scope for complementarity, meaning that one service can augment or improve the value of the other.

In this way, different objectives, for example distributors’ data needs and regulators’ reporting requirements, are reconciled and streamlined. This means that, from the infrastructure view, the services of European fund actors services can be scalable and cost efficient and, importantly, the field can be opened to future value creation.

Maintaining competitiveness in the age of digital transformation

The investment fund industry, especially its fund distribution chain, is positioning itself to take advantage of this new approach to information, how it is accessed and how it is delivered.

The demands of fund companies, the requirements of policy makers and regulators as well as the changed expectations of investors should be taken into account. Process optimisation must continue, fund companies should be more client centric and an advanced data-driven mindset is fundamental.

As the digitalisation of the distribution chain gathers pace, all actors now expect and require a seamless, end-to-end flow between information producers and information consumers. Future-proofing the fund industry involves real-time flows, holistic data management and big data techniques and analysis.

The key is to provide a frictionless experience, with better, faster and easier access to data and documents.
Julien Renkin

Julien Renkin,  Head, Client Solutions & Project Management,  Fundsquare

One area that is especially ripe for change is user experience. Indeed, a recent Deloitte survey of fund managers (“Fund Distribution Industry Survey 2020”) noted that “enhanced user experience” was in second place on the list of critical factors to improve, just behind “increase scale and efficiency”. Fundsquare takes the view that for effective change to happen this must include all users within the distribution chain.

Here, APIs are becoming increasingly common. Looking to the future, Data as a Service, or DaaS, has potential for delivering highly targeted services and enabling all actors in the chain to consume and to provide data when they need to or want to. Looking more deeply, for some actors, an enhanced user experience means easy-to-use tools that enable better data quality loop backs and activity monitoring.

The key is to provide a frictionless experience, with better, faster and easier access to data and documents. Improvements in this area can be partly aided by giving fund companies the opportunity to exploit the emergent complementarity of information flows and exchanges.

An infrastructure for the fund industry 2.0

Bringing all these elements together, the way forward for Luxembourg is to continue facilitating relationships and exchanges between industry actors and enabling the release of synergies, with the aim of value creation.

By providing the fund distribution ecosystem with an effective market utility and next-generation infrastructure, as is the case already in Luxembourg with Fundsquare, all fund actors can be in better position for future growth.