There has been a relatively recent growth in the size, diversity and specialisation of Luxembourg’s capital markets sector. This trend prompted the creation of the Luxembourg Capital Markets Association (LuxCMA) in 2019, which works to strengthen collaboration across Luxembourg’s dynamic ecosystem, work which contributes to growing the country’s competitive capital markets hub. Innovation has been the hallmark, not only by well-known, major infrastructure players, but also by a host of other operators who provide access to international capital markets, either for financing or for securitisation purposes.
Capital markets innovator “Luxembourg is a trailblazer and innovator in the capital markets space. 60 years ago, the world’s first Eurobond was launched in the Grand Duchy, a move which changed international capital markets, and exemplifies the visionary spirit of this country’s financial sector,” noted Julie Becker, Chair of LuxCMA. “LuxCMA has 54 members who represent the full breadth of the financial services sector in the Grand Duchy,” she added.
Given this diversity and the private nature of many members’ operations, quantifying the size and growth of this sector can be challenging, but there are numerous indications of growth and sophistication. Securitisation and structured finance make up a significant portion of capital market activity in Luxembourg, driven by the range of expertise thriving in the country’s cutting-edge, well-crafted regulatory environment, which features an AAA sovereign credit rating. The most recent figures highlight 1,500 securitisation vehicles based in the country, governed by a law dedicated to these structures; with a regime which was updated as recently as last year.
As an association, our role is to ensure that Luxembourg’s capital market remains attractive, predictable and agile.
Innovative international hub
This favourable framework enables the structuring of a wide range of assets including mortgages, lease/trade receivables, loans/non-performing loans, SME financing, real estate, and even car loans. The European Central Bank reported that the Grand Duchy had 29% of all securitisation financial vehicle corporations in the Eurozone in 2020. “Luxembourg’s unique international capital markets framework and expertise make it ideal for international companies of all sizes to finance their global activities via Luxembourg structures,” said Frank Mausen, LuxCMA Secretary and member of the executive board. “Luxembourg is not only renowned for its fund and private equity expertise, it is also a well-recognised hub for finance and structured finance vehicles. These capital raising vehicles can carry out debt and equity issuances efficiently. These features enable Luxembourg operations to be blended easily into international structures.”
Recent examples of innovation include the establishment of Distributed Ledger Technology (DLT) platforms, within a state-of-the-art regulatory framework. Luxembourg has become the jurisdiction of choice for issuers and arrangers of these innovative products. “With Luxembourg understanding the need to provide flexibility within available frameworks, we are seeing existing DLT platforms interested in migrating their platforms within our borders,” Mr Mausen said. Another area in which Luxembourg excels is the ESG segment. For instance, the largest green exchange in the world has been established in Luxembourg in 2016.
Luxembourg’s unique international capital markets frame-work and expertise make it ideal for companies to finance their global activities.
LuxCMA and its role
LuxCMA was founded in 2019 to give greater focus to this activity, to promote best practices and to be an advocate for the sector in Luxembourg and at the European level. LuxCMA is focused solely on activity in the primary capital markets space, and so does not seek to compete with other Luxembourg professional organisations. Rather, it collaborates extensively with those working in the fund, banking and private equity spheres. There are currently 8 working groups (see box) within LuxCMA, and knowledge sharing is spread through networking events and thought-leadership papers.
“LuxCMA covers the entire framework of capital market activity, and this enables us to create taskforces featuring the full range of expertise,”said Ms Becker. “This know-how ensures that when industry input is needed, we can provide a comprehensive expert view. This increases our capabilities to serve clients and ensures our voice is heard by authorities in Luxembourg and beyond,” she said.