Luxembourg: a mature market with opportunity

With great growth comes great operational responsibility


Ann Doherty: “Private equity is not the only industry facing these kinds of challenges. Asset managers of other asset classes are also dealing with complex, long-term and fundamental sector changes.” (Illustration: Maison Moderne)

Traditional fund management represents the main vehicle for growth and the key to Luxembourg’s status as a hub for the global fund industry. However, in line with J.P. Morgan’s strategy to provide services to all asset classes, one in particular has experienced an exponential rise in recent years and has found a fruitful home in Luxembourg - private equity.

Private equity has been the jewel in the crown of the alternatives investment space in recent years. Strong growth and solid returns have led to a new level of market maturity, with PwC expecting the asset class to represent almost half ($10.2tn) of the growing alternative assets market, likely to reach $21.1tn by 2025.

J.P. Morgan has helped institutional investors and broker-dealers optimize efficiency, mitigate risk and reduce costs through custody and asset servicing for many years and remains a leading provider of these services in Luxembourg. Given the firm’s outstanding client relationships with private equity clients in the country, the future is bright. 

But how can these firms, and the Grand Duchy itself, ensure growth stays strong and what factors should the industry be thinking about? 

Luxembourg has become a vibrant and exciting place for private equity funds to thrive, contributing to the industry’s success up to this point. Thanks to its unique range of fund solutions, solid governance and stable tax environment a growing number of the world’s leading PE firms are choosing to domicile their structures, move infrastructure and people into the jurisdiction. 

To maintain this momentum, the industry must look beyond the current market dynamics and not underestimate the growing role of data, data management and its impact on operational efficiency. Due to the huge amounts of data triggered by the pace and complexity of today’s market, data management, risk mitigation and portfolio management analytics have never been more important. When added to the regulatory requirements and the responsibility of transparency for investors, these factors are becoming central to the industry and many firms are now choosing to outsource these functions in order to boost efficiency, reduce the technology spend and focus on their core business of investing.

Luxembourg, a strategic hub

Private equity is not the only industry facing these kinds of challenges. Asset managers of other asset classes are also dealing with complex, long-term and fundamental sector changes. Businesses will need a clear strategy with an intense focus on addressing efficiency, product complexity, globalisation, technology and data, and regulation and with the pedigree of servicers at its disposal; Luxembourg is now a strategic hub for the asset management community. 

Driven by Luxembourg’s strategic importance, large firms are beginning to move a wider range of functions to the country including senior staff. As global levels of cross border activity rise for investment and distribution, Luxembourg is perfectly placed to benefit. Global asset management firms are recognising this and we are reaching a tipping point as they view Luxembourg as a viable strategic center point. As the gravitational force of the country continues to grow stronger, J.P. Morgan is working with asset managers to not only to meet their future state demands but also to share our expertise in managing high impact strategic change programs, as they transform their business and their operating model. 

Luxembourg remains a country-of-choice for many global institutional investment firms. For this to remain, the industry and the country will need to continue to invest to stay ahead of global competition. If the industry and the country continue to embrace this challenge, and there is every chance that it will, Luxembourg will remain at the forefront for private equity and asset management firms to house structures that they can then use as a springboard to grow their business. That’s why J.P. Morgan has invested heavily in its Luxembourg franchise and has been a hub for our Custody and Fund Services business since 1973.

It has a long history of supporting and servicing all assets, including private alternative assets from both the asset management and asset owner perspective. As the investing and fund structuring world has become more complex, our services focused on fund administration, depository, investment analysis, performance analytics and data management have proved invaluable to our clients, and we have now established the convenience of one legal entity for all EEA clients to work with.