contribution - Alfi

The call for NextGen solution providers


À gauche, Steve Bernat founding partner chez One Group Solutions. (Photo: Archives Paperjam)

The Luxembourg fund industry has experienced a phenomenal growth phase. According to ALFI, net assets under management in Luxembourg investment funds recently exceeded 4.4 trillion euros. They are expected to cross the 5 trillion euro mark well before 2025, making Luxembourg the largest investment fund centre in Europe.

Luxembourg is reaping the benefits of being a first mover following the European Union’s adoption of the original UCITS regulation in 1985 and has successfully attracted international fund managers wishing to leverage the opportunities of cross-border distribution in Europe and beyond. The recent success of LP structures and RAIFs shows that the Grand Duchy is not resting on its laurels, but remains a vibrant and innovative financial centre.

The effects of Brexit only accelerated this growth trend, with 66 companies having announced their relocation to Luxembourg as of August 2019, the highest number for any European country, according to KPMG. Further asset growth will be driven by demographic trends and the rising demands of the retirement market. This is truly a golden era for Luxembourg.

Evolution ahead

However, this growth presents significant challenges for the industry. First and foremost, how do we, as service providers to the industry, accommodate and sustain the creation of value and quality for our clients as the asset management industry undergoes seismic transformations? Luxembourg faces a scarcity of talent in key areas, such as compliance and risk management.

At the same time, the complexity of fund products is increasing (especially in the alternative space). Needless to say, the rise in regulation of our industry in response to the financial crisis of 2008 and the increasing intricacy of the regulatory environment is not only here to stay, but will increase the demands on all protagonists in the value chain for years to come. Finally, the technological landscape is developing in ever-faster cycles. These factors will demand evolution, adaptation and new solutions of the Luxembourg fund industry.

New solutions

Luxembourg has taken many of the right steps to embrace these challenges: it remains an attractive place to work for a global talent pool, and the University of Luxembourg, with its international and interdisciplinary curriculum, contributes to a multilingual, professional workforce.

However, this is only the starting point. In order for Luxembourg to avoid becoming a victim of its own success yet harness the opportunities presented by continuous industry growth, new solutions enabling us to use resources in a scalable, sustainable and efficient manner must be cultivated.

In this golden era for Luxembourg, new and bold firms that adapt to the evolution of the fund industry with innovative solutions will prosper.
Steve Bernat

Steve Bernat,  founding partner,  One Group Solutions

This calls for NextGen solution providers for the fund industry employing smart technology – with tailor-made, technology-based oversight and control applications: management companies built on automated governance solutions that provide full transparency and control to the client; compliance tool kits that automate mundane and repetitive compliance tasks allowing compliance officers to focus on high-risk areas; and corporate solutions utilising the latest technology to cover all aspects of fund governance and board oversight.

NextGen solution providers will be our industry’s custodians ensuring that asset managers adhere to applicable rules and regulations, client mandates, and best industry practices. But we must consider the same question the Romans did: “Quis custodiet ipsos custodes?” – who will guard the guards?

Technology-based governance tools will play a key role in this effort, whereby specialist solution providers can become a focused extension of the operations of established industry players relieving them of some of their resource challenges. In this golden era for Luxembourg, new and bold firms that adapt to the evolution of the fund industry with innovative solutions will prosper.

More news on the fund industry in  Paperjam’s Alfi  supplement.