Paperjam Investment funds supplement in collaboration with ALFI, september/october 2016

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INVESTMENT FUNDS SUPPLEMENT

September / October 2016

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EDITORIAL

Luxembourg’s unrivalled legal toolbox

MAISON MODERNE

O

ver the last few years, the global financial landscape has been subject to fundamental changes. The financial crisis of 2008 has indeed led citizens and decisionmakers to take a fresh look at the financial sector and its legal framework. Within only a few years, legislators all over the world have implemented a number of substantial reforms that have reshaped the face of the sector.

Specifically with regard to taxation, more advances have been made in the last two years than in the two decades before. From an era of relative opacity, we have moved towards an age of transparency. The automatic exchange of information has become the new global standard.

Under the Luxembourg presidency, the European Union could even find a compromise to apply this principle to tax rulings. In doing so, the EU has already begun to transpose the OECD base erosion and profit shifting (BEPS) principles that will profoundly change international taxation in the years to come. The implementation of BEPS will also lead to a progressive alignment of tax regimes all over the world. While too high tax levels will increasingly be seen as non-competitive, too low levels will expose the countries in question to growing peerpressure. With the 2017 tax reform, Luxembourg’s corporate tax rate will decrease from currently 21% to 18% in 2018. This gives a clear indication that Luxembourg intends to remain competitive, without joining a race to excessively low levels. The government monitors the implementation of BEPS closely, and stands ready to take appropriate measures to neutralise the effects of the broadening of the base as they will occur. This will be possible as decisive actions have been taken over the last few years to curb public spending and consolidate the country’s AAA credit rating.

For a leading financial centre like Luxembourg, it is of the utmost importance to be at all times compliant with the international rules and standards.

Since I took office, I made sure that

P I ERRE GRAMEGNA Minister of Finance

wherever there might have been deficits in this regard in the Luxembourg legal framework, they were revisited.

Today, Luxembourg enjoys the same rating by the Global Forum as Germany, the UK and the US. While the government continues to update the Luxembourg toolbox, we make sure that every new instrument is in line with the relevant European and international standards, albeit without gold-plating them. The latest example in this regard is the newly created reserved alternative investment fund, which will no doubt open new opportunities for the Luxembourg fund industry. The fund industry is one of the major pillars of Luxembourg’s financial centre. Its success is built on Luxembourg’s traditional assets: stability and reliability, a strong anchor in the European Union and the Euro Zone, a reactive and knowledgeable regulator which is open to innovation, an unrivalled legal toolbox and an ecosystem of highly skilled and multilingual professionals.

Since the British people’s decision to leave the European Union, another strength of Luxembourg has raised to prominence: its ability to build bridges and to work in a collaborative manner, also across EU borders. In the wake of Brexit, Luxembourg does not intend

to take away business from London, but to help UK-based businesses to continue doing business with the EU. This will also benefit the Luxembourg fund industry, which already today has strong ties with London.

On an international level, the government, together with Luxembourg for Finance, will continue to promote the fund industry and its services as a key component of Luxembourg’s value proposition.

Macroeconomic developments such as historically low interest rates, on the one hand, and a growing need for investments, on the other hand, favour the further development of the investment fund industry. While UCITS has become a well-established household brand, alternative funds show impressive growth. Luxembourg supports and encourages this development and intends to firmly establish its position as the leading European hub in this field as well. In this context, the increasing use of FinTech solutions will help make the industry even more efficient and profitable. I congratulate ALFI on the organisation of this year’s edition of the Global Distribution Conference, which has become an institution in itself. I wish you all fruitful discussions and am looking forward to the conclusions thereof.

Supplement 09-10 / 2016 — Investment funds —

— 03

One might be forgiven for thinking that everything that could possibly be said on this issue has been said, and probably many times over. There are those for, those against, the agnostics and every shade of opinion. It is interesting however that we do not seem to believe that the debate might have, indeed should have, and moved on.

OUTSOURCING, AND INSOURCING - IS THE ISSUE REALLY DONE AND DUSTED ?

It is a paradox that at the macro level we are in an environment that is calling for structural change – especially in the labour market, whereas at the same time, in this industry which at its heart there should be the definition, identification and evaluation of macro and micro trends we are amongst the most reluctant to change when it comes to processes and operating models.

The standard operating model for the fund industry in Luxembourg in particular – due to high labour costs – but also in other domiciles, is a core processing model, supported in almost all cases by processing in remote centres, be it on an outsourced OR in-house model. This is engineered around “the system” – the variations of which are somewhat reminiscent of bells and whistles and most beginning to look decidedly long in the tooth (now accompanied by the vigilant hordes as Depositaries have fully realised the cottage industry potential of UCITS V and AIFMD “oversight” responsibilities.) Each time there is a change, we tweak it and carry on.

Our current pre-occupations…(to name but a few….)

– and why that intellectual capital is so important.

PRIIPs - we may know the when, and we know part of the content – but it would be a brave man who says he has all the answers. If he does ask him the simple question – “liability?”

MiFID II - It has been delayed – it has not gone away. With impacts for the buy and the sell side… and divergences in national interpretations to be anticipated - Truly something for everybody Asset Segregation (ESMA Consultation) - After two attempts in AIFMD and UCITS V there

are still open questions and views seem to diverge rather than converge Securitisation - The mystery guest – did you know that UCITS appears more flexible than AIFMD – and everything could change with the CMU proposals. But does anyone care?

AIFMD – and the third country passport.

- The AIFMD show that runs and runs… what will the Commission do with ESMA’s advice – and did ESMA really intend to give a post Brexit UK a “get out of jail free card”?

In addition we have a tendency to see Fintech as a set of “nice to have” Apps to keep the computer and smartphone literate happy, and we have no idea where we are going to find the next generation of experience and knowledge once the current incumbents shuffle off into retirement. It will prove an increasing struggle to find qualified resources to monitor what is being done elsewhere if those skills are no longer practiced in-country. And for all the power-points in the world, that crucial experience is not going to come from theory.

This all occurs against a backdrop of change: a coming revolution in AML/KYC when technology transfers the balance of responsibility to the initial point of entry into the financial system at least for the internal market, block chain that may alter the way we think (the market is already divided between those looking to leverage its capacities and those denying them).

At the same time we are currently implementing something in the order of 40 financial legislative initiatives – how many companies have the luxury to retain in-house expertise on all of those?

The question we should be asking ourselves is how best to procure the necessary resources to accomplish all that needs to be done to deliver tomorrow’s solutions from today’s markets. The model itself is secondary.

In some cases that may be the traditional service providers. In some cases it may be “small is beautiful”, a few highly paid experienced resources – who will in turn train the next generation, backed up by state of the art technology. And in some cases it may be hybrid. In all cases however success will be in disposing of the necessary resources, especially human, and in realising the Fintech can be a soup to nuts solution and not just something for your smart-phone. Success will be in getting that human capital equation right, and in that one size will certainly not fit all.

Far from being done and dusted the issue is only just beginning to be aired. In place of the traditional outsource/ insource model we should be thinking where is the intellectual capital and how may it be accessed most cost effectively for each actors’ needs.

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CONTENT

September / October 2016 — Investment funds Supplement ALFI

INVESTMENT MANAGEMENT INDUSTRY

08

12 Change is coming Jim Fitzpatrick (NICSA) W E A LT H M A N A GEMEN T

14 More opportunities in the viewfinder

HK Investment Funds Association STATISTICS

22 Luxembourg fund industry at a glance GUILLAUME PRACHE, MANAGING DIRECTOR OF BETTER FINANCE

26 What investors want CROSS-BORDER

30 Moving towards a single market on private pensions

DENISE VOSS, CHAIR OF ALFI

Funds’ new challenges

Jacqueline Lommen (Robeco)

New markets, a new fund vehicle, and new moves towards cutting regulatory cost points to on-going dynamism in Luxembourg’s fund sector.

E ASIER, FASTER...

34 Robo-advice beyond Millennials Sergio Venti (Deloitte Luxembourg) THE PENSION FUNDS STORY

36 Are we moving towards an EU Single

HISTORY

Market for personal pensions?

Bernard Delbecque (EFAMA)

LEGAL FRAMEWORK VS. INVESTOR PROTECTION

40 Changing distribution models Gudrun Goebel (Fundrock Management Company)

16

FUND DISTRIBUTION WORLD TOUR

FROM SCR ATCH TO LE ADERSHIP

Making success of globalisation: a case study Luxembourg was only just waking up to the implications of UCITS 30 years ago, but now it is the global capital for cross-border fund distribution. Five ex-chairmen of ALFI help us understand this transformation.

44 Check your passports José-Benjamin Longrée (PwC luxembourg) DIGITALISATION

46 Printing buildings Nasir Zubairi (fintech advisor and investor) INDUSTRY CHALLENGE

BUSINESS LOCATION

INTERNATIONAL FUNDS CENTRE

What is Luxembourg’s secret?

Speedy adoption of the EU’s UCITS rules made the Grand Duchy an international funds centre.

Flexibility and attention to details remain keys to the sector’s success.

56

50 The regulatory and tax landscape: a never-ending story?

Pascale Leroy (KPMG Luxembourg) TECHNOLOGY VS. HUMAN

52 Change in distribution models –

investor, distribution and market needs Olivier Bilal (UBS)

ALFI GLOBAL DISTRIBUTION CONFERENCE 2015

60 Flash-back Supplement 09-10 / 2016 — Investment funds —

— 07

ALFI

D ENI SE VOSS “Our job is to implement the regulation in the most practical way possible.”

08 —

— Supplement 09-10 / 2016 — Investment funds

ALFI

DENISE VOSS, CHAIR OF ALFI

Funds’ new challenges S T E P H E N E VA N S |

C H R I S T IA N AS C H M A N

New markets, a new fund vehicle, and new moves towards cutting regulatory cost points to on-going dynamism in Luxembourg’s fund sector.

The UK’s vote to leave the EU opens several possibilities too, but also carries risk, says the chair of ALFI, Denise Voss.

S

ome months after the vote, the fallout from the Brexit vote remains a central interest to the Luxembourg fund industry. This is important, as 16.5% of Luxembourg fund assets under management are managed in the UK. The situation is unlikely to become clear for many years, yet there is speculation about whether UK-based activity may move to an EU hub. There is a potential downside too, as small open economies like Luxembourg, Ireland and the Netherlands might be about to lose a reliable free-market focused ally in EU decision-making forums.

A post-Brexit influx?

“Most UK asset managers with an interest in international UCITS distribution already have funds domiciled in Luxembourg or Ireland,” Voss noted in an interview, suggesting there won’t be a substantial UCITS redomiciliation from the UK. That said: “We have already seen a few indications that some asset managers are building or adding to their management company presence in Luxembourg,” she added. In the meantime, “it will be important to reassure British citizens working and living in Luxembourg and the government is working in that direction,” she added.

There could be a substantial change for UK alternative investment fund managers if they will be required

to acquire a third-country passport to access the EU market. “It is certainly too early to say what the impact on these UK AIFMs would be, but if some decide to seek a EU hub Luxembourg w o u l d b e a c l e a r c h o i ce , ” Vo s s remarked.

Longer-term opportunities and risks

The separately-managed account business could also have potential for the Grand Duchy. “London excels in this area, in which institutional investors hire asset managers to manage to their specific needs,” Voss explained. This differs from an investment fund because the separately-managed account investor directly owns the securities instead of a share in a pool of securities. “Although this business does not require a European passport as such, there are some institutional investors in Europe that may be required or would prefer an EU-based account asset manager.

This is where Luxembourg could help, given its financial services ecosystem and its significant experience as a management company centre,” she added.

Brexit could have longer-term perils though. “We are losing an ally,” Voss noted. “Having the UK on board for certain elements of regulation is positive for the smooth running of the crossborder distribution of UCITS.” A par-

LUXEMBOURG’S REACTION

BREXIT STRATEGY TAKES SHAPE How has Luxembourg reacted to the UK’s vote to leave the EU? ALFI, other finance associations, the Luxembourg for Finance trade promotion group and the government are working on their own plans, while coordinating strategy and policy. “We want to underline that this country has a long-standing relationship with the UK that we all want to see continue,” Voss said. Luxembourg is taking a soft-sell approach. In a visit to London on 25 and 26 July, the finance minister Pierre Gramegna and economy minister Étienne Schneider avoided combative statements. “We are not here to take your companies back to Luxembourg,” Schneider told Reuters.

Gramegna in an interview with the Wall Street Journal actually suggested that Brexit could be beneficial to the City, before adding: “Our message is that we want to help. Our country offers smart solutions to having a presence with substance to reach out to the EU single market.”

ticular disappointment is the departure of Jonathan Hill as European commissioner for financial stability, financial services and the Capital Markets Union. Not only was he leading the effort to review and rationalise recent financial sector regulation, but he was driving the Capital Markets Union plan which has potential benefits for asset managers and others.

“It is disappointing but he was not the only one championing the CMU, which after all is part of the Juncker plan for creating jobs and growth in Europe,” Voss developed.

International markets develop

Otherwise, the industry is excited about new international opportunities, particularly the recent opening of the Brazilian market. Since June 2016 individuals and institutions based in Brazil are permitted to invest substantially in financial products located outside the country. For asset management, this would involve feeder funds investing in UCITS located elsewhere, with Luxembourg a strong candidate.

“Although Brazil is going through difficult times at the moment, there is a growing middle class amongst the 2 0 0 m i l l i o n p o p u l a t i o n , ” Vo s s explained. Brazilian interest rates have tended to be high, so there has been little incentive to look elsewhere, but Voss sees a “realisation in Bra-

Supplement 09-10 / 2016 — Investment funds —

— 09

ALFI

REFEREN CE Since September 1992, the ALFI Global Distribution Conference is one of the main events in the fund industry.

cussing is a so-called “KYC-utility”.

“We don’t know exactly what that would look like, but there is a will in the financial services industry to do something,” she added.

KYC utility?

New tools and architecture

There is also about to be a new addition to the Luxembourg fund toolbox.

“I understand from many industry colleagues that there is significant interest and demand for the RAIF [Reserved Alternative Investment Fund],” Voss said. This new vehicle would enable regulated alternative investment fund managers based in Luxembourg to administer unregulated funds destined for professional investors in the EU. At the moment, both the fund and the manager need to be regulated, so the RAIF would hasten time-to-market while granting the fund a European marketing passport. This vehicle received legislative go-ahead in July.

Easing the cost of regulation is a driving concern for the industry. “I see ALFI’s role as a federator to help the industry move towards common standards, working closely with regulators, the government and other Luxembourg financial industr y associations,” declared Voss. This applies to service infrastructure and moves towards new FinTech tools.

One such opportunity that ALFI is dis10 —

I see ALFI’s role as a federator to help the industry move towards common standards.

— Supplement 09-10 / 2016 — Investment funds

Know your customer (KYC) regulations seek to exclude criminals from using the financial system, and current practices are cumbersome and costly. A KYC utility would collect client information centrally, including checking that each is not on criminal or terrorist watchlists. Clients would then give permission for this data to be accessed, thus cutting cumbersome on-boarding procedures. At the moment, financial sector businesses have to create and maintain their own KYC database: an expensive, time-consuming job that carries substantial risk to reputation if a mistake is made.

Several utilities exist, but none is specifically designed to suit the needs of the cross-border asset management industry.

A KYC utility is another example of how Luxembourg brings people and technology together to solve problems. Regulations keep coming, with PRIIPS and MiFID II the main new challenges. According to Voss, “once again, our job is to implement the regulation in the most practical way possible to keep costs down for the industry and for investors”.

A long-standing relationship with the UK that we all want to see continue.

16.5%

of Luxembourg fund assets under management are managed in the UK.

L A L A L A P H OTO /A R C H I V E S

zil that diversification is important.”

ALFI is working with their local counterpart ANBIMA, and is a regular visitor to the country.

Asia continues to offer great opportunities, with UCITS still overwhelmingly the favoured vehicle for cross-border business. This is despite the advent of regional passporting schemes which are intended to enable Asian players to bypass UCITS. As yet there is little sign of these initiatives catching on. The track record and wide acceptance of the EU-based model is too great, and these new schemes don’t have the international reach of the UCITS EU regulation and cross-border distribution model, nor do they have clear legislative procedures behind them.

Asian passports generally focus on Asian products featuring Asian securities, while UCITS offers the complete range of international investment options.

NEW TECHNOLOGIES

J I M F I TZPATR I CK President of NICSA

INVESTMENT MANAGEMENT INDUSTRY

Change is coming J I M F I T Z PAT R I C K ( N I C SA) |

New technologies mean new challenges.

But also new opportunities.

Robo-advisors and customisation may bring the next generation of savers into the investment market.

12 —

MAISON MODERNE

W

inston Churchill once said, “to improve is to change; to be perfect is to change often.”

This is exactly the environment in which the global investment management industry finds itself operating.

The industry is under siege as transformational change comes at it from all directions. Whether it’s new products, new technology, a rapidly evolving regulatory environment or shifting distribution models, the industry is facing more change than ever. Virtually every aspect of the business is challenged with staying current on these issues.

— Supplement 09-10 / 2016 — Investment funds

Every need is critical and in many cases represents a major strategic initiative that requires the marshalling of resources across the organisation. None of these initiatives exists in a vacuum and each needs to be prioritised relative to the firm’s overall objectives. Consider, for example, the generational shift to lower-cost, index-based investment products that continue to gain market share. This, in turn, puts pressure on revenues which may limit the resources available to underwrite the required changes.

Big data, CRM, cybersecurity and robo-advisors provide a further challenge to both systems and marketing.

The ability to capture and analyse data and then incorporate that data into CRM systems, promises to both protect and provide better insight into a firm’s customers. These initiatives will support the development of more individualised marketing and communications tools, while delivering significant gains in marketing efficiency.

On the smaller account end of the scale, CRM and other technologies may be linked to algorithmic-driven platforms — robo-advisors — to provide a better understanding of the investment needs of Millennials and other entry-level investors, a key constituency for driving future asset growth.

On the regulatory front there’s a continued focus on new and updated regulation. Much like the investment management firms, the regulators are trying to stay current on adapting to the shifts within the industry. In the US, the Securities and Exchange Commission is considering new rules governing transfer agents, updating disclosure requirements or reporting account segregation and cybersecurity among other issues. The Department of Labor released its new fiduciary rule, with the potential to significantly reshape the $25 trillion (in assets) retirement market once it’s implemented.

The complexit y of managing through all these changes is compounded by the interaction of the systems needed for implementation and the requirements for resources. Fortunately, the promise of the new technologies is substantial — simplified, multi-platform communications, more efficient infrastructure, higher levels of customisation, data mining and analysis and better IT security. To do this, however, requires a significant commitment by the entire firm and a lot of technological and operational fire power.

NICSA was created with the mission of supporting global investment management firms, the operations and technology professionals that lead them.

From the start, our goal has been to help the industry better understand and manage through change, by identifying best practices and providing a forum for members to share information and insight.

Together we can continue to gain exposure to new ideas and practices, and to learn from each other.

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FROM HONG KONG

W E A LT H M A N A GEMEN T

More opportunities in the viewfinder H K I N V E S T M E N T F U N D S AS S O C IAT I O N |

MAISON MODERNE

The Hong Kong fund industry has many ambitions for its development. For example, an alternative distribution platform is under consideration.

T

he Hong Kong Investment Funds Association has been acting as a collective voice for the Hong Kong asset management industry since 1986. We have engaged in regular dialogues with the Financial Services and Treasury Bureau, Securities and Futures Commission, Mandatory Provident Fund Schemes Authority and other authorities to help shape the discussions to ensure that the regulatory initiatives introduced are effective and pragmatic. We hope that the outcomes are in the best interests of investors and are conducive to market development.

been providing technical inputs as we believe they can bolster Hong Kong’s position as an asset management centre.

To provide thought leadership, HKIFA commissioned a key research project to explore ways to encourage the development of the third-pillar retirement system in Hong Kong.

In addition, we commissioned a report, entitled Vision 2020 — The Future for Hong Kong’s Fund Management Industry, which lays out a roadmap for the future development of Hong Kong as a strategic international asset management centre.

Hong Kong

Stock Connect and the China Interbank

We have had dialogues with the SFC over a Bond Market range of subjects. Of particular importance The launch of Stock Connect in November 2014 is the proposal to revamp the fund authori- was a milestone in mainland China’s capital sation process. Over the past few years, we account opening process and RMB internationhave been working closely with the SFC to see alisation. SC is instrumental in reinforcing Hong how to further enhance the efficiency and Kong’s position as an asset management centre. effectiveness of the authorisation process. We However, due to the unique nature of this are grateful that the SFC has heeded market structure and the differences in the structure needs, and the proposal put forward in 2015 of both markets, there are a range of technical represents a major breakthrough and is issues that need to be addressed. We have warmly welcomed by the indusworked very closely with the try. After a thorough consultamainland and Hong Kong tion process in which HKIFA authorities to relay the views took a very active role, the SFC of investment managers on rolled out a revamped regime issues such as beneficial in November 2015 to enhance ownership, pre-trade checkThe growth of equity fund sales the authorisation process, ing, disclosure of interests which will, we believe, effi- during the first half of 2015 in Hong and short-swing profits rules.

Kong. ciently reduce the time to marWe will continue to maintain ket and enable investors to dialogues with the authorimore effectively capture market ties to identify means to furopportunities. ther refine the system — not The net equity inflows in Hong Two initiatives that the just for the Shanghai ConKong (first half of 2015).

Hong Kong Special Administranect, but for the impending tive Region government has Shenzhen Connect. been working on with full Of equal importance is The proportion of fund managers thrust are the introduction of the opening up of the of Hong Kong-based funds who a new open-ended fund comonshore bond markets, and expect double-digit-plus growth in pany structure and the introwe have also been in close percentage terms in mainland d u c t i o n o f t h e l e g i sl at ive discussions with the mainChina assets under management framework to facilitate autoland authorities to provide over the next 5 years. matic exchange of tax informasuggestions on areas that t i o n . We e m b r a c e t h e s e can further improve market initiatives warmly and have access.

55%

$6.7B 87%

14 —

— Supplement 09-10 / 2016 — Investment funds

Mutual recognition of fund products between Hong Kong and mainland China

In May 2015, the China Securities Regulatory Commission and HKSFC signed a memorandum of regulatory cooperation in respect of the mutual recognition of funds (MRF). The launch of MRF is a milestone in mainland China’s capital account opening process and RMB internationalisation.

Through the MRF, the CSRC and SFC allow mainland and Hong Kong funds that meet the eligibility requirements to follow streamlined procedures to obtain authorisation or approval for offerings to retail investors in each other’s market. HKIFA will continue to provide technical support to further enhance the scheme.

A s the global re gulator y landsc ape becomes more complex and interconnected with more regulations influencing the asset management industry — e.g., SIFIs, liquidity risk management and fees and charges — we have maintained close dialogues with overseas counterparts through international and regional platforms to share best practices and latest regulatory developments.

Looking ahead

With the further opening up of the financial markets in the mainland, we expect that there would be more opportunities for the fund industry in Hong Kong to serve the wealth management needs of mainland investors.

Technology will assume an increasingly important role in the asset management industry, and we will be looking more into this to see how to best harness technology to better serve investors’ needs.

For instance, we are exploring with the authorities the feasibility of developing an alternative distribution platform to broaden the distribution channel. We would also be providing inputs to the authorities on how to factor technology in the regulatory framework to increase accessibility and to enhance investor experience.

All in all, we will stay ahead of the curve and keep members abreast of these market developments and the related opportunities as well as providing thought leadership.

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HISTORY

FROM SCR ATCH TO LE ADERSHIP

Making success of globalisation: a case study S T E P H E N E VA N S

Luxembourg was only just waking up to the implications of UCITS 30 years ago, but now it is the global capital for cross-border fund distribution.

To understand this transformation we spoke to five ex-chairmen of the industry association ALFI.

HISTORY

ALFI CHAIRMEN

Pierre Vansteenkiste 1988 – 1992 Patrick Zurstrassen 1992 – 1995 Jean-Michel Gelhay 1995 – 1998 Rafik Fischer 1998 – 2001 Guy Legrand 2001 – 2003 Thomas Seale 2003 – 2007 Claude Kremer 2007 – 2011 Marc Saluzzi 2011 – 2015 Denise Voss Since 2015

T

he European asset management industry had been discussing the Undertakings for Collective Investments in Transferable Securities (UCITS) directive for months leading up to its adoption on 20 December 1985. However, L u xe m b ou r g ’s p r ivate b a n k i n g centred finance industry was almost completely unaware. According to Patrick Zurstrassen, ALFI’s second chairman, a handful of people had an inkling of the potential. “Lawyers and members of the IML [the financial sector regulator] understood quite quickly that Luxembourg law could be adapted easily to the requirements of UCITS,” he said.

Tentative early steps

There was a need to become informed and participate in the debate, but the European fund industry federation FEFSI (now EFAMA) would not have accepted a membership application from the Luxembourg bankers’ association (ABBL). A dedicated fund industry body was needed.

Even though Luxembourg was the first EU country to adopt UCITS into national law (on 30 March 1988), this move only happened more than two years after the directive had been introduced.

A further nine months of wrangling was needed before local professionals formed ALFI. A group of pioneers

took the lead, founded an association and joined the European federation.

Initial efforts centred on establishing credibility with the European industry and authorities. At this time the potential of UCITS started to dawn on international financial groups. Luxembourg seemed to be the logical choice for a cross-border distribution hub given its multilingual, multicultural workforce, and local authorities that were willing to learn and adapt.

French, German, Swiss and American players established a toe hold in Luxembourg as the 1990s began. The focus was building technical specialisation in the creation, domiciliation, administration and distribution of funds on an international scale. The larger, more established financial centres would continue to take care of fund management.

Greater reputation and influence

By the mid-1990s the country’s reputation as a serious player had been established within the industry, and the Grand Duchy started to take a leadership role at the European level.

This was exemplified by Zurstrassen being elected president of the European fund association in the late 1990s after a stint as ALFI chairman, a trajectory which was followed a decade later by Claude Kremer.

The importance of this leadership status was underlined when Luxem-

bourg worked to build a coalition to frustrate the draft UCITS II directive.

The plan would have seen most work disappear from Luxembourg, with feeder funds in other countries able to loop business through a central holding company hub. “This would have subverted the spirit of the directive, and it took five years of work to have this withdrawn,” Zurstrassen noted. More constructive talks then began, culminating with UCITS III in 2002.

It was partly due to the desire for a close ally in European decisionmaking forums that the Luxembourg industry was relaxed, and even encouraged the growth of Dublin as a fund centre. During the booming start-up phase, the Grand Duchy had possibly more growth than it could handle, so it had little need to worry about competition. Dozens of funds were being established each month, service providers were arriving, expanding and becoming more specialised, with thousands of new staff being hired each year.

Moreover, growth in this friendly rival also helped spread the message about UCITS and cross-border fund distribution from a centralised hub.

Some anglophone players in the 1990s were more open to the idea of an Irish hub, particularly for alternative funds. However, once the principle had been established, this made it easier for Luxembourg to sell itself

INVESTMENT FUNDS IN LUXEMBOURG

The never ending success story...

Adoption of the first European directive for collective investments in transferable securities (UCITS directive)

Luxembourg is the first member state to transpose the UCITS directive

Creation of ALFI, the Association of the Luxembourg Fund Industry

First annual Europe-US Investment Fund Forum (now known as Global Distribution Conference) organised by ALFI and NICSA (National Investment Company Service Association, in the USA)

December 1985

March 1988

November 1988

September 1992

16 —

— Supplement 09-10 / 2016 — Investment funds

HISTORY

as a base for hedge funds, private equity funds, real estate funds and the like.

Speedy asset growth

The pace of growth has been astonishing. Total net assets of Luxembourg domiciled funds reached 250 billion euros in mid-1995, but by 2001 the 1 trillion mark was in sight, and Luxembourg had become Europe’s largest fund centre and the global number two. But then the dotcom crash hit, and it took until 2004 for the 1 trillion euro milestone to be reached and the position of European leader to be regained. However, the rate of growth was substantial, and by 2007 total assets were at 2 trillion euros.

The global financial crisis sent valuations tumbling, but these losses were recouped in about two years, and by 2016 net assets were around 3.5 trillion euros, with Luxembourg funds being sold into more than 70 countries.

“The 1990s were a great time to be doing business,” said Rafik Fischer, whose chairmanship spanned the turn of the millennium. He spoke of the excitement of building a new industry and embracing opportunities. They were exploring virgin territory, and there was latitude of how work could be conducted and how regulations could be designed to maximise benefits for clients and the industry.

First ALFI Spring Conference entitled “European Investment Funds on the Move: Opportunities and Risks” March 1996

Patrick Zurstrassen (ALFI's president 1992 – 1995) Professional role during chairmanship: CEO, Caceis Bank Luxembourg (1987 – 2002), and Crédit Agricole Indosuez Luxembourg (1987 – 2001) Currently: chairman, Lombard Odier Investment Managers, and honorary chairman, European Confederation of Directors’ Associations

Given the fast rate of growth, finding sufficient staff was a major challenge. Unemployment hovered around 2%, so businesses had to bring staff from abroad or look to hire in neighbouring countries.

Managing success

In the seven years to 2001 the number of cross-border workers doubled to around 100,000, with the fund business being a leading driver of this trend (incidentally, there are now more than 175,000 non-resident com-

“In the beginning there was no fund industry to speak of, but quickly it was sensed that this business would become important.

No one really dared give voice to their true beliefs that the industry would come to be measured in trillions. For a while I was responsible for statistics at ALFI, and I was regularly asked to make predictions, and the figures I quoted have proved to be too low by a factor of ten. We were all pleasantly surprised that our hopes were realised.”

muters). Specialist fund industry courses were organised for the first time within the banking training organisation IFBL. ALFI also started to fulfil its potential.

Even in the late 1990s the association represented less than half the eligible funds based in Luxembourg, but by 2001 this had risen to nearly three quarters.

The association’s statutes were revamped on several occasions. Initially this was to permit the inclusion of service providers as members alongside the

Luxembourg became, for the first time, the largest investment fund centre in Europe, overtaking France

Adoption of a new European directive for collective investments in transferable securities (UCITS III directive)

December 1999

January 2002

Luxembourg is the first country to transpose the UCITS III into its national law December 2002

Supplement 09-10 / 2016 — Investment funds —

— 17

HISTORY

“While the first-mover advantage of Luxembourg being the first to adopt UCITS was important in these early days, sustained success required much more than this simple action.

That we were quick to act symbolises a country with a legislative and regulatory environment that is both attractive and adaptable.”

funds themselves. Further reforms in the 2000s established an ever more professional setup, with the growth of specialist working groups, a proactive management posture, and strong emphasis on public relations. English was made the vehicular language, with the Association Luxembourgeoise des Fonds d’Investissement becoming the Association of the Luxembourg Fund Industry. By the late 1990s the association only had a couple of staff, a legal counsel and a part-time assistant. The payroll rose to ten in the early 2000s, and now stands at around 30.

Another part of this work was to explain funds locally, as by the mid2000s the industry had grown to become equally large as the wealth

Rafik Fischer (ALFI's president 1998 – 2001) Professional role during chairmanship: head of investment funds and global custody division, KBL European Private Bankers (1997 – 2001) Currently: group head of business development, KBL European Private Bankers

management industry. The two sectors had developed different approache s, with ALFI keen to embrace a global public relations effort, with the private bankers favouring a continuation of their traditional low-profile stance. Banking secrecy was at the heart of this cultural difference, as this was an irrelevance for the fund industry, but a key strategic advantage for many wealth managers.

Going beyond Europe

However, the post-crisis decision to abolish fiscal secrecy brought the two sectors more closely together. This has since helped Luxembourg for Finance promotion agency (formed in 2007) speak with a unified voice

that stressed expertise and cross-border business.

Reaching new markets outside Europe was a growing priority for the fund industry in the mid-2000s. Luxembourg discretion had until then seen the industry focus on cementing its place as a European UCITS hub, with communication policy following this mindset. Next year will be the 25th anniversary of the first Global Distribution Conference, which was then hosted in partnership with NICSA, the US investment management industry association.

The first Spring Conference was held in 1996, with the annual alternative conferences starting in the mid-2000s.

This discretion had served the industry well in the start-up phase, but a membership survey in the early 2000s suggested that Luxembourg should do more to be visible internationally. The first ALFI promotional trip to London in June 2005 met expectations when 150 high-level guests attended. The effort was ramped up quickly, so that by 2007 no fewer than 48 visits had been made around Europe, Asia and Latin America, often with the direct participation of the finance minister, Luc Frieden.

The trips enabled contacts to be cemented with clients, partners, and crucially with regulators. Local supervisors were put in touch with dedicated contact people at the CSSF, so helping to increase confidence in Asian and South American markets that Luxembourg and UCITS could be trusted.

INVESTMENT FUNDS IN LUXEMBOURG

... The never ending success story Creation in Luxembourg of the SICAR (investment vehicles in “risk capital”), fully dedicated and customised to the needs of private equity

Luxembourg ranked, for the second time, as the largest investment fund centre in Europe and is still holding that leadership so far

Adoption, in Luxembourg, of the law on Specialised Investment Funds (SIFs)

Industry volumes in Luxembourg grew steadily reaching the milestone of 2,000 billion euros of assets under management

June 2004

2005

February 2007

May 2007

18 —

— Supplement 09-10 / 2016 — Investment funds

HISTORY

“By the mid-2000s local players realised we could do more because the Luxembourg brand was becoming increasingly well known and respected.

A membership survey suggested that we needed to go out to meet clients, business partners and global regulators to explain UCITS and Luxembourg’s unique offering. This seems obvious now, but at the time it was a novel approach for an industry and country traditionally known for discretion.”

In parallel, ALFI representative offices were established in Brussels in September 2006 and Hong Kong in 2010. The result is now that clients in Singapore, Taiwan, South Korea, Chile, Hong Kong, Peru and more are happy to invest in products based and regulated in Luxembourg. Brazil is the latest promising market to open up.

China is the big prize. When the six largest Chinese banks decided to locate important operations in the Grand Duchy, the fund sector realised it too had an opportunity to access the country’s enormous untapped potential. The aspiration of selling UCITS directly into China could take some time to achieve, but other business lines have resulted from the on-going charm offensive. Chinese

Thomas Seale (ALFI's president 2003 – 2007) Professional role since 1997: CEO, European Fund Administration

fund managers are using the Grand Duchy to target the European market, and Luxembourg funds have a quota enabling them to invest directly into mainland China. ALFI continues to invest substantial effort in explaining the advantages of Luxembourg UCITS to the industry and regulators.

Diversification into alternatives

With more global partners to satisfy, there was a greater demand for Luxembourg to bring its expertise to bear on a wider variety of products. The SICAR was created in 2004 to specifically cater for private equity funds, with the Specialised Investment Fund (SIF) vehicle introduced in 2007 for all types of alternative funds. In both cases, industry players had a

Claude Kremer (ALFI's president 2007 – 2011) Professional role since 1988: founding partner & head of investment management, Arendt & Medernach

“Funds did not cause the crisis, but initially many investors didn’t make a distinction, putting the blame at the door of the whole financial sector.

We had to show that funds are a different type of product.”

The European Parliament adopted changes to the UCITS directive, known as UCITS IV

Luxembourg is the first European state to transpose the UCITS IV into its national law, three days just before celebrating the 25th anniversary of the first UCITS European directive

Luxembourg ranks as the secondbiggest domicile for non-UCITS in Europe, with a total of 1,885 funds (1,266 SIFs and 619 Part II funds)

Adoption of the European directive AIFM (Alternative Investment Fund Managers)

January 2009

December 2010

May 2011

June 2011

Supplement 09-10 / 2016 — Investment funds —

— 19

HISTORY

Marc Saluzzi (ALFI's president 2011 – 2015)

strong hand in the drafting of the legislation, working closely with regulators, civil servants and politicians.

O n e o f t h e G 2 0 ’s k n e e - j e r k responses to the financial crisis was to require all financial products to be regulated. The European Commission rushed to regulate alternative funds, and there was a potential danger for Luxembourg and the asset management industry as a whole. However, substantial lobbying resulted in an AIFMD which works for the industry, and which has also helped anchor the concept of cross-border alternative fund distribution. “The result is an alternative business that is growing substantially in Luxembourg,” noted Marc Saluzzi, who was deeply engaged in this work before and during his period in the chair.

Stronger after the crisis

The fund industry was battered by the financial crisis, but it could be argued that it has emerged in a stronger position. Asset valuations crumbled, and a couple of Luxembourg funds had links to the fraudster Bernard Madoff, and facing this international communication challenge was a new experience. Tough though this experience

Professional role during chairmanship: PwC partner responsible for the Luxembourg financial services practice (2010 – 2016) Previous role: head, PwC global asset management (2006 – 2010)

was, the industry survived without lasting damage, proving the robustness of the fund model. A provider might go out of business, but the fund’s assets are ring-fenced, with the vehicle remaining solvent and liquid.

Even so ALFI realised it needed a more proactive long-term approach to communication. International journalists were courted, being invited to events in Luxembourg and on missions abroad, with special events organised for the press. Until then

“After the crisis we stepped up our communication with international journalists particularly from the UK, France and Germany. We invited them to our conferences, and often there was surprise at how large these events were, with 700-800 people regularly in attendance.”

many had been unaware of Luxembourg’s size and important role.

In these three decades, the industry, backed by its association and ambitious governments, has created a globally important services hub.

“Many Luxembourg operations are now centres of excellence not just for Luxembourg business, but also for nonLuxembourg services to the rest of the group,” said Saluzzi, suggesting that Luxembourg is shedding its traditional image as just a back-office centre.

INVESTMENT FUNDS IN LUXEMBOURG

... The never ending success story Luxembourg is the second European state (after Malta) to transpose the AIFM directive into its national law

The European Parliament adopted the last known changes to the UCITS directive, known as UCITS V

Industry volumes in Luxembourg grew steadily reaching the milestone of 3,000 billion euros of assets under management

Luxembourg is the 11th European state to transpose the UCITS V into its national law

July 2013

August 2014

September 2014

May 2016

20 —

— Supplement 09-10 / 2016 — Investment funds

B E C O M E P A R T O F T H E F A M I LY

Independent & Family Owned LUXEMBOURG

•

LONDON

Enquiries

•

•

Private Banking

•

MONACO

•

•

Wealth Management

LIECHTENSTEIN

t. +352 463 131

•

•

BAHAMAS

• •

e. info@banquehavilland.com

Institutional Services MOSCOW

•

•

DUBAI

•

•

Asset Management

GENEVA

w. banquehavilland.com

•

ZURICH

3,887

BIG DATA

The number of investment funds domiciliated in Luxembourg STATISTICS

Luxembourg fund industry at a glance J E A N - M I C H E L GAU D R O N |

MAISON MODERNE

Luxembourg is today the largest investment fund centre in Europe. Here are some concrete illustrations (figures as on June 30, 2016).

1. GLOBAL OVERVIEW Number of funds/units

4,000,000

14,000

3,500,000

12,000

3,000,000

10,000

2,500,000

8,000

2,000,000

6,000

1,500,000

4,000

1,000,000

2,000

500,000

0

Number of funds

22 —

Number of units

Net assets

— Supplement 09-10 / 2016 — Investment funds

20 15 Ju ne 20 16

20 14

20 13

20 12

20 11

20 10

20 09

20 08

6

20 07

20 0

20 05

20 04

20 03

20 02

0

20 01

20 0

19 99

19 98

19 97

19 96

19 95

19 94

19 93

19 92

19 91

19 90

0

SOURCES: ALFI/CSSF

Million euros

16,000

7,509

7,876

20 03

20 04

6

6,000 1,365 1,418

1,379

1,373

20 10 20 11 20 12 20 13

Supplement 09-10 / 2016 — Investment funds —

2,552

2,577

1,310

2,538

2,529

2,462

2,427

2,302

2,108

2,019

1,326

1,688

Single funds

20 15 Ju ne 20 16

1,367

1,355

20 09

20 14

1,352

1,180

20 08

20 07

1,387

1,298

The total amount (in billion euros) of assets under management

14,208

762

20 05

1,226

1,180

The number of compartments in Luxembourg

14,108

742

20 04

1,190

1,129

1,028

3,461.904

20 15 Ju ne 20 16

13,849

20 14

13,420

20 12

13,685

13,294

20 11

690

20 03

851

751

20 02

6

779

20 0

757

0

20 01

913

2. NUMBER OF FUNDS

20 13

12,937

12,232

20 09

20 10

12,325

717

19 99

797

711

2,500

20 08

11,115

9,473

724

19 98

632

2,000

20 07

20 0

8,497

7,806

20 02

715

19 97

20 0

752

19 96

573

511

437

1,500

20 05

7,519

6,995

756

19 95

717 772

0 19 94

19 93

500

20 01

0

5,836

5,178

4,000

20 0

19 99

19 98

4,618

10,000

19 97

12,000

3,393

14,000

19 96

3,597

19 95

0

3,262

2,000

19 94

2,775

1,000

19 93

14,208 BIG DATA

Umbrella funds

4,500

4,000

3,500

3,000

3. FUND UNITS

16,000

Growth rate (12 months)

1.38%

8,000

YTD: 0.70%

— 23

+59,000

BIG DATA

The number of distribution agreements for Luxembourg UCITS

DK

4. GEOGRAPHICAL ORIGINS

1.88%

LU

2.11% NL

Others

2.43%

6.43%

BE

US

4.23%

20.74%

FR

7.83% Net assets GB

IT

US

16.68%

8.91%

4.24% GB

Others

0.62%

CH

14.02%

6.97%

15.56%

DK

DE

14.73%

LU

5.40% NL

1.34%

BE

4.40%

Number of UCITS

7.10%

IT

3.68%

CH

13.40%

Venture capital

0.04%

Futures and/or options

Private equity

0.67%

Real estate

1.39%

Cash

0.35%

Other assets

1.04%

0.07%

Money Market instruments and other short-term securities

8.08% Funds of funds

Fixed-income transferable securities

6.01%

31.18%

Investment policy Mixed transferable securities

22.05%

Variable yield transferable securities

29.12%

24 —

— Supplement 09-10 / 2016 — Investment funds

DE

37.33%

FR

5. INVESTMENT VEHICLES

Yves Tambour

PUBLIREPORTAGE

FundGlobam

YVES TAMBOUR, MANAGING PARTNER CHEZ FUNDGLOBAM, UNE SOCIÉTÉ SPÉCIALISÉE DANS LA DISTRIBUTION TRANSFRONTALIÈRE DES FONDS D’INVESTISSEMENT QUI PROPOSE SON EXPERTISE DANS PLUS DE 50 PAYS, DONT LA SUISSE. QUEL EST LE PRINCIPAL DÉFI POUR LA SUISSE AUJOURD’HUI ?

La Confédération ne fait pas partie du marché unique européen.

Même si le pays se trouve au centre géographique de l’Europe, il est considéré comme un pays tiers et, à ce titre, n’a pas un accès facile aux marchés de l’Union européenne (UE). Une alternative fréquente passe par le Luxembourg : beaucoup de banques et de sociétés de gestion suisses s’y sont installées et y ont créé des fonds d’investissement qu’ils opèrent au départ de Luxembourg.

Avec un total de 480 milliards € d’actifs en avril 2016 (soit 14 % des actifs luxembourgeois), la Suisse est le quatrième apporteur d’actifs à Luxembourg. Les fonds de promoteurs suisses domiciliés à Luxembourg sont dès lors commercialisés sur base transfrontalière, et notamment en Suisse.

LA CONFÉDÉRATION DOIT ELLE FAIRE FACE À D’AUTRES DÉFIS ?

La Suisse n’attire peut-être plus aussi naturellement les capitaux étrangers que par le passé : les différentes crises, les obligations de transparence et d’échange d’information, les mesures en matière de fiscalité prises dans l’Union Européenne et aux États-Unis, comme par exemple les mesures d’amnistie fiscale, la taxation des résidents américains … sont autant d’éléments qui ont joué un rôle.

COMMENT LA SUISSE PEUT-ELLE SE RENOUVELER ?

La place financière suisse est basée sur une industrie solide avec beaucoup de savoir-faire et de capacités ; le marché en lui même est un marché important et parmi les plus exploités en termes de distribution transfrontalière des fonds d’investissement.

Un des éléments clés est sa position vis-à-vis de l’Union Européenne : la Suisse est enclavée au centre de l’Union et son développement futur passe obligatoirement par des relations économiques et des régimes d’équivalence plus forts lui donnant la possibilité d’adresser les marchés de l‘UE de manière plus naturelle. On peut penser qu’il faille faire évoluer le modèle économique pour la gestion d’actifs et la banque privée. La Suisse est un des premiers centres mondiaux de gestion d’actifs, de banque privée et de services à une clientèle fortunée. Les premiers pas vers une ouverture des marchés européens et suisse s’annoncent, notamment dans le secteur des fonds réservés aux investisseurs professionnels.

Dans ce contexte, FundGlobam apporte son savoir-faire pour aider les gestionnaires suisses à structurer leurs offres, à l’européaniser et à proposer des produits commercialisables sur base transfrontalière.

© 360Crossmedia/P.D.

POUR UNE PLUS GRANDE COOPÉRATION ENTRE L’UNION EUROPÉENNE ET LA SUISSE « La Suisse n’attire plus aussi naturellement les capitaux étrangers que par le passé. » Yves Tambour, CEO chez FundGlobam

Nombre de fonds distributés en Suisse

13.357

Fonds luxembourgeois

Fonds irlandais

2.175

8.327

Autres

Fonds suisses

611

2.244

ACTIFS SOUS GESTION DES FONDS SUISSES

872 Mia CHF

684

il y a 5 ans

892

il y a 12 mois

PARTS DE MARCHÉ EN AVRIL 2016 DES PROMOTEURS SUISSES

TOP 3

UBS

Crédit suisse

Swisscanto

26 % 16.3 % 9.2 %

> 50 %

85 %

15 %

Fonds d’actions (equity funds), les fonds obligataires (bond funds) et les fonds mixtes (mixed funds) Autres catégories d’actifs (money market, real estate, alternative, commodities)

INTERVIEW

G U IL L A U ME P RA C H E is the managing director of Better Finance.

He was previously a magistrate at the French Court of Auditors, chief financial officer with pharmaceutical firm Rhône-Poulenc Rorer (now Sanofi), and the European managing director of the Vanguard Group asset management firm.

26 —

— Supplement 09-10 / 2016 — Investment funds

INTERVIEW

GUILLAUME PRACHE, MANAGING DIRECTOR OF BETTER FINANCE

What investors want S T E P H E N E VA N S |

C H R I S T IA N AS C H M A N

How have investors’ needs and expectations changed?

Guillaume Prache of the European investors’ federation, Better Finance, sees confusion and unhappiness at low returns, and he believes a new focus is required.

Prache thinks savers should be encouraged to see how they make a key contribution to long-term economic growth.

S

avers are suffering. Interest rates are low or negative, and after years of waiting investors are despairing of being able to make a return on their money.

In 2013 Better Finance warned of “a disastrous eradication of European savings,” and that since then the European Central Bank has intensified “the financial repression of European savers by further lowering its main interest rate.” In a communiqué, they said this went as far as “threatening the whole edifice of pensions and savings”.

conditions for more funding to flow from Europe’s savers to Europe’s businesses” by ex-European commissioner Jonathan Hill. “Having a clear stake in the development of business and economic growth will instil a healthy attitude towards longterm investment in bright ideas,” Prache argued, adding that “asset managers then need to keep their side of the bargain, delivering returns by working in partnership with business.”

Potential golden era

These challenges are not new, progress is not likely to be speedy and Connecting savers with production there are economic headwinds. NevThere appears to be no end in sight ertheless, Prache sees the potential to the policies with quantitative eas- for a “golden era” for the fund indusing at their heart, so is there a way try. “The need for alternative sources forward for asset managers? “I believe of pension savings needs will explode a healthy outlook was because people are livdescribed in the book ing longer, and government systems Other People’s Money published last year by experience greater difThe need for Professor John Kay,” ficulty providing what Guillaume Prache, alternative sources is needed,” he undermanaging director of He sees ultra-low of pension savings lined.

Better Finance, suginterest rates on bank gested in an interneeds will explode. savings accounts as an view. In particular, he opportunity for fund managers which can highlighted the following quotation: “We need offer alternative savings asset managers whom we can trust to hold options. He added that this highlighted our savings for the long term and build the need to bear down on fees, with legknowledgeable, enduring relationships islators and regulators having a major with the companies in which they invest.” responsibility to make sure consumer It has been a long-standing goal to protection rules do their job and at a grow the relationship in Europe between reasonable cost. savers and the wider economy, and In this regard “Luxembourg is playing Prache thinks more than ever legislators, an important role contributing to the regulators and the industry should focus well-being of European households,” said on achieving this. Europe’s over reliance Prache, given its contribution to facilion bank financing is contributing the tating fund distribution across borders. low growth environment, he thinks, and This is important as pensions will come too many believe the financial sector to to rely more heavily on such collective be divorced from the so-called real econ- investment schemes.

Despite these efforts, a major, longomy. Hence his strong support for the EU’s Capital Markets Union initiative term problem still haunts the European which was trailed as “creating the right industry. He pointed to a market of Supplement 09-10 / 2016 — Investment funds —

— 27

INTERVIEW

around 35,000 UCITS funds and several thousand alternative vehicles, being well over four times as many as existing in the US. “This fragmentation in a smaller market means costs per unit in Europe are more expensive than in the US because they cannot spread fixed costs as effectively,” he said.

Moves to drive down fees

Advisory fees play into this question, and change is afoot here due to regulation, but also new technology.

Financial advisors and online platforms are to be forbidden from accepting hidden sales commission from product providers. The aim is to remove the risk of supposedly independent financial advisers and fund platforms pushing the products that earn them the most commission, irrespective of suitability. The concern is that this practice has been central of mis-selling scandals.

First to act was the UK with their Retail Distribution Review (RDR) rules coming into force from 2013, with the Dutch detailhandel beoordeling (retail assessment) following a year later.

Similar rules are set to be enforced throughout the EU as part of the second Markets in Financial Instruments Directive (MiFID II). Instead, they must charge clients upfront fees for the services they provide.

EURO P EA N CMU Guillaume Prache strongly supports the EU’s Capital Markets Union initiative.

Impact of RDR?

“The effects of these British and Dutch moves are hotly debated,” Prache explained, “however, we do indeed appear to have seen a lowering of overall cost for the end investor.” He pointed to evidence of a “significantly” rising proportion of sales index funds and exchange traded funds, with their lower fee structure. “We are still far away from the situation in the US where index funds are as equally popular with institutional and retail investors, while in Europe there is a 90%/10% split in favour of the institutions,” he noted.

While this suggests these regulations are having the desired effect of putting downward pressure on fees, there are real concerns that the least wealthy investors may be missing out. Tending to have limited knowledge of financial investing, they are less likely to be willing to pay up-front advisory fees than their wealthier, more savvy counterparts. Wrapping fees into overall costs appears to make investors more willing to pay for advice.

Robo-advice to bridge the gap

“Robo” advice might be a way forward.

“We are seeing several national authorities understanding there is an advice gap and looking at how online algo28 —

MORE ABOUT PRACHE

WHAT IS BETTER FINANCE? “Better Finance” is the European Federation of Investors and Financial Services Users. It represents more than 50 national and international organisations in the EU, and beyond which themselves have around 4.5 million individual members. Created in 2009, it now has influence in the key European financial regulation forums. For example, it takes a leading role in the European Commission’s Financial Services User Group, the ESMA Securities & Markets Stakeholder Group, and the EIOPA Occupational Pensions Stakeholder Group. As well, it conducts policy analysis, research, promotes training, and publishes information on investment, savings and personal finance. (www.betterfinance.eu)

rithms could provide part of the solution,” noted Prache. These systems are gaining traction in the US but he pointed out that they are still at an early stage of development. Investors input details about their financial needs and risk profile, generating a series of potential portfolios and options to buy. This is a much cheaper option than traditional face-to-face consultation, but with the obvious risk that advice is not perfectly aligned with consumer needs.

Indeed, earlier this year Better Finance published the findings of its research on robo-investment advice.

It analysed and compared the main US-based platforms with a selection of the newer European examples. The report found the platforms “do provide advice to some extent, the main services they provide are closer to asset management services.” Hence the report suggests the name “roboinvesting” is more appropriate than “robo-advice”.

As for fees, the structure was judged to be “far simpler”, usually limited to an advice fee and the underlying fund fees. The resultant fees tended to be far lower, but naturally “the services provided are typically more basic and less personalised.”

They also found that index funds and ETFs were often frequently recommended.

Obviously investors want high returns. Failing that, the industry has to make sure quality is first-rate, and costs as low as possible.

— Supplement 09-10 / 2016 — Investment funds

19

The number of Better Finance’s experts in the European Commission’s Financial Service User Group and in the ESAs Stakeholders Groups alone.

90/10

The split, in Europe, in favour of institutional and retail funds, compared to index funds.

Luxembourg is playing an important role contributing to the well-being of European households.

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2ND AND 3RD PILLARS

CROSS-BORDER

Moving towards a single market on private pensions JAC Q U E L I N E LO M M E N ( R O B E C O) |

MAISON MODERNE

New EU rules will make setting up and running cross-border pension funds more realistic.

A

re we moving towards a single market for private pensions? Yes, sure! Circa 100 cross-border occupational pension funds, initiated by multinationals or financial institutions, are already in place in the EU. Moreover, in the personal pension market, joined efforts from the EU and the industry are underway to introduce a standardised European pension savings product which could be used by individuals across Europe.

Progress is steady, but in general slower than hoped for. What is the latest state of affairs and how could we create more awareness on the already available solutions so that the take-up rises?

larger part of the future benefits stem from investment gains during the accrual phase.

Cross-border occupational pension funds

The European occupational pension market was created following the introduction of the EU pensions directive, back in 2003. Currently, the directive is for review and the formal approval of the new directive is foreseen for autumn 2016. A successful and broad consensus among public and private stakeholders and all member states was reached in the spring.

The directive regulates Institutions for Occupational Retirement Provision (IORPs) and provides them – if they meet the right conditions – with State and private pensions a European passport to operate in the When talking about pensions a dis- EU single market. tinction must be made between state, The chart on page 32 shows how occupational and personal pensions. a cross-border European pension fund In pension jargon, they are also cat- functions. On the one hand (see left) egorised as 1st, 2nd and a pension provision 3 rd pillar pensions, consists of a pension respectively. Private institution, the IORP, pensions encompass that offers the penthe latter two. State sion solution. It acts Around 100 pensions across as the legal entity and cross-border Europe are in a chalfinancing vehicle. The lenging position.

IORP is based in a IORPs are now specific member They are based on a in place. so - c alled pay-asstate, chosen by the you-go system, employers and whereby youngsters pay for pension- employees. This member state is the ers. In an ageing society this intergen- home country and the IORP’s funding erational solidarity has become less regime, compliance and governance sustainable. As state pensions tend to structure are regulated by this home become eroded, private pensions have state. The EU pensions directive harto be boosted to prevent old-aged pov- monises these requirements up to a erty. Private pensions are usually certain extent. based on a so-called funded system, On the other hand (see the right whereby each individual saves for his part of the graphic), the pension soluor her own old-age pensions, and a tion consists of a pension product or 30 —

— Supplement 09-10 / 2016 — Investment funds

pension scheme. These schemes vary a lot per member state. Either the benefits could be guaranteed (defined benefit, or DB) or the contributions fixed (defined contribution, or DC).

Also the premium contributions paid in periodically vary substantially per member state. Even so, local investment rules and tax incentives vary.

As such, pension products are not harmonised within the EU. They always remain compliant with the local regulation and local traditions of their so-called host state. The IORP itself is supervised by a single lead supervisor, the home country supervisor. Local schemes have to meet a set of pre-defined local rules, which are identified and provided by a host supervisor to the lead supervisor.

In practice this works very well.

Around 100 cross-border IORPs are now in place. Several aim for smaller groups of workers in just two neighbouring countries or on specific groups of expat workers. However approximately 25 IORPs have been launched by multinational employers in order to efficiently manage pension schemes for local employees of their numerous local subsidiaries. Moreover banks, insurers and asset managers are in the process of setting up cross-border pension providers in order to expand beyond their borders and tap new growth opportunities in foreign pension markets without having to set up a local branch. Especially DC products and efficient life-cycle investments have a promising outlook.

One of the main aims of the 2016 revised IORP directive is to support these two private market parties.

Cross-border European pension funds are a key instrument in increasing access to cost-efficient and high-qual-

2ND AND 3RD PILLARS

ity private pension savings across the EU and in addressing the ageing challenges.

Cross-border personal pension plans

J ACQUELI NE LOM M EN SVP European pensions at Robeco

Next to savings made via the employer, people save personally for their old-age income. These 3rd pillar pensions are usually not organised via IORPs, but via a bank savings account, a life insurance policy or an investment fund (mutual fund). No efficient EU single market for the personal pension does exist right now. However a major initiative is underway to facilitate individual pension savers as well. The ideas for a Personal European Pension Plan (PEPP) aim for a regulated cross-border pension product that could be offered either by banks, insurers, asset managers or pension funds. Individuals could save for their old-age income via a dedicated personal pensions account which is portable across countries and providers.

The product will be based on a DC structure with regular premium contributions and no benefit guarantees.

It will be as simple and accessible as possible. The EU will set rules for proper consumer protection via standardised requirements for, amongst others, the investment strategy, member communication and also to ensure a long-term nature of the savings by discouraging (too) early withdrawal and spending of the savings. The product will have an EU “stamp”, showing to consumers that the savings plan adheres to EU standards and is portable across the EU. The initiative is based on a close cooperation of public and private stakeholders. EIOPA, the European pensions authority and supervisor, plays a leading role. The various industry bodies, varying from financial institutions, multinationals, trade unions to consumer protection groups strongly support the initiatives. Lately, also the European Commission and Parliament are endorsing the plans. A broad market survey has been issued by the EC, due for end October 2016, in order to collect input and find even broader awareness and support.

Varying ways towards a single private pension market

It is interesting to note that the approach towards a single market pension solution is fundamentally different in the occupational and in the personal pension market. Both are fully feasible and are already being applied across the EU single market.

Firstly, in the personal pension market, the focus is on a regulated cross-border pension product (PEPP) which is offered by various financial Supplement 09-10 / 2016 — Investment funds —

— 31

2ND AND 3RD PILLARS

Regulated by social & labour law of country of origin of the pension scheme/plan (“host countries”)

>

>

Pension Scheme country A

Pension Scheme country B

Pension Scheme country C

— Supplement 09-10 / 2016 — Investment funds

>

>

>

32 —

CROSS-BORDER PENSION INSTITUTION (IORP)

>

IORP Pension Institution (financing vehicle, legal entity)

>

institutions. While in the occupational pension market (see above) the focus is on a regulated cross-border pension institution (IORP) which offers various local products. The different approach stems from the fact that international streamlining of a personal pillar pension product is somew h a t e a s i e r t h a n s t re a m l i n i n g o c c u p a t i o n a l p e n s i o n p ro d u c t (schemes), which tend to be closely linked to vested local social security, tax regimes and labour relations.

Secondly, the PEPP will probably be introduced via a harmonised, so-called second regime, approach.

The IORP is based on the concept of minimal harmonisation and mutual recognition.

Three ways towards a European single market can be distinguished.

This goes for the pension market, but also for other EU markets and initiatives. Assuming a starting situation with many divergent local products (or institutions, or procedures) the EU single market solution could theoretically be most fast realised via an “in-one-go” replacement of local products by fully standardised EU solutions. However this route is not feasible. It is simply not possible under current EU accords. Several items cannot be harmonised as they belong to the mandate of the member states to decide upon; the EU is not allowed to regulate in these areas.

This goes, for instance, for tax and social security items. The second route is the most used route in the EU. It consists of two combined measures. The EU sets a minimal number of harmonised requirements for local solutions and simultaneously requests all member states to allow foreign products (or institutions, or procedures) to be mutually accepted across borders. As a result, gradually over time, local solutions will converge as a result of international private market dynamics. It is a lengthy route but a proven and successful one. Member states are affected only marginally as just a minimal number – heavily negotiated – EU requirements have to be implemented locally. This route is being used in the occupational pension market (IORP).

The third route introduces a fully harmonised, standardised EU solution next to existing local solutions (so not a full replacement like in route one). It is called the second regime approach. Subsequently, private market players choose freely between a local or the EU solution. Over time the EU solution might replace the local one. This route is challenging as it is difficult to find a compromise on

Regulated by financial/prudential legislation of country of origin of domicile of the pension institution (“home country”) and approval of the standardised EU solution. Member states tend to prefer to adhere to their local practices.

They fear the erosion of the traditional, carefully fine-tuned local solutions that meet local habits, local vested interests and local market dynamics. However this route is faster than number two because the EU solution becomes available immediately.

Moreover it is allowed under EU law and has been successfully applied, for instance for UCITS investment funds.

This route is aimed for by the introduction of the PEPP.

Conclusion

Are we moving towards a single market for private pensions? Yes, sure! As described above the European pension solutions are already a tested concept in the occupational pension market. The number of cross-border pension funds (IORPs) is steadily increasing and the 2016 revised IORP directive will actively support the early movers. In the personal market a major new initiative is underway to introduce an individual pension savings product which is simple to understand, accessible for all individuals in the EU and portable across borders.

Now it comes down to spreading the news and to making even more parties aware of these opportunities.

Pension products are not harmonised within the EU. They always remain compliant with the local regulation and local traditions of their so-called host state.

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DIGITAL AGENDA

E ASIER, FASTER...

Robo-advice beyond Millennials S E R G I O V E N T I (D E LO I T T E L U X E M B O U R G) |

MAISON MODERNE

What are the prospects for future growth?

Can financial regulations keep pace with market reality?

R

obo-advisory, or the automation of financial advice, has become a priority in the digital agenda of most financial organisations. Born in the United States and rapidly expanding in Europe, it originally aimed at providing access to low-cost investment strategies for people who would otherwise not engage in the investment process.

Not surprisingly, its take-up in the UK coincided with millions of investors leaving the market or being de-prioritised by their advisors, following the introduction of the Retail Distribution Review and new advisor charging rules. Continental Europe is not immune, as new inducement rules either were adopted or will soon be, following the entry into force of MiFID II in January 2018. After a few

clicks, robo-advisors combine individual client information and algorithm-based portfolio management to develop a portfolio allocation or a set of suitable investment recommendations.

Throughout the process, users benefit from a fully digitalised experience, from account setup and profile setting to portfolio construction and transaction processing. As the most immediate benefit has been to make advice more affordable to a wider range of consumers, younger and less affluent investors are typically considered as their principal, if not exclusive, target market. This must be qualified against the available data, suggesting that early providers attracted clients on average much older than expected, and whose capital invested was significantly higher than initial estimates.

S ERG IO VEN T I Director at Deloitte Luxembourg

34 —

— Supplement 09-10 / 2016 — Investment funds

Robo-advice clearly presents benefits that go beyond pure cost considerations, therefore making it attractive well beyond Millennials. First, the digital approach simply makes it easier, faster and more convenient for consumers to access advice.

Questionnaires can be filled on a website 24/7, they are usually well designed and take a few moments, after which the user can act upon the advice received within seconds. In addition, the simple approach that associates a certain basket of assets to a specific risk profile narrows down the margin of discretion of a human advisor. Finally, the process excludes any potential pressure or bias of a personal relationship with the advisor.

The evolution of the UK pension market provides a good example of client diversification: as retirees were given the ability to manage their own pension savings in April 2015, those with pension pots below £250,000 have been particularly keen to look online for ways to pick investments in retirement, at least for part of their investable assets. This has created a significant new market for online advisors.

Despite their rapid adoption by the market, robo-advisors are still at an early stage when compared to the entire wealth management industry.

The potential risks that could negatively impact clients and the stability of the financial system are therefore yet to materialise. Cyber security immediately comes to mind, and with it the ability to prevent client data from being stolen, misused or lost.

Transparency of the information and of the investment process are also key, as investors may be more exposed to unsuitable decisions.

The tool itself must ensure that it will not produce unsuitable outcomes due to limitations, overly simplistic assumptions or errors in the development/testing phases of the system.

Finally, the controverted claim of a “herding risk” leading to increased market volatility and resulting from higher transaction volumes linked to similar algorithms must be addressed.

As is often the case with financial innovation, robo-advisors emerged in a context of lack of clarity in the existing legislative framework and inconsistent regulatory treatment across the banking, securities and insurance sectors.

It is therefore crucial for online providers to clarify their regulatory status and to manage the development of their service with a forward-looking interpretation of these regulatory requirements.

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EUROPEAN OVERVIEW

THE PENSION FUNDS STORY

Are we moving towards an EU Single Market for personal pensions?

B E R N A R D D E L B E C Q U E ( E FA M A) |

MAISON MODERNE

The European Commission should produce personal pension framework within the next two years, reckons the EFAMA trade group.

A UCITS-like passport will be a clear plus for both consumers and the industry.

E

urope must prepare itself to the consequence of the ageing population and its effects on pay-as-you-go public pensions by further developing funded pension schemes to secure adequate living standards for future generations of retirees. This was the strong message of the European Commission’s 2012 white paper on pensions, An Agenda for Adequate, Safe and Sustainable Pensions, which also highlighted the increased responsibility that will be put on citizens to save for their pensions. As a follow-up to this report, the commission asked European Insurance and Occupational Pensions Authority’s advice on the development of an EU single market for personal pensions.

This article discusses the circumstances that led to the commission’s request and the main messages of the advice of EIOPA, which was published on 6 July 2016 (it is available on eiopa. europa.eu). It then presents EFAMA’s views on EIOPA’s main recommendations, and concludes with call on the European Commission to take the necessary legislative initiative to create an EU single market for personal pensions.

The reality of today’s market for personal pensions

The market for personal pension products (PPPs) in Europe is very fragmented along national borders because different laws governing the design, the production and the distribution of PPPs oblige pension providers to offer country-specific products. Such differences together with different taxation regimes for PPPs between member states explain why the European market counts so many different types of PPPs (at least 72 different types, according to EIOPA) and why cross-border provision of PPPs is so limited (an estimated 4% of the assets under management).

The personal pensions market in the EU is also highly concentrated, with the Netherlands, UK and Belgium accounting for almost 77% of all reported PPP assets. These statistics confirm that there is definitely room for third-pillar savings in many European countries.

It should be noted that the insurance sector dominates the provision of PPPs. 82% of the PPP assets are covered by the Life Assurance directive. In such an environment, it is impossible for consumers to have access to foreign PPPs,

the choice between different types of providers remains limited, the cost of pension products is high, and the portability of personal pension savings across borders is almost non-existent.

Chart 1 on page 38 summarises the limitations of the current structure of the market for both providers and consumers.

EIOPA’s advice: let’s create a pan-European personal pension product

Following the publication of its white paper on pensions, the European Commission asked EIOPA in July 2012 to provide technical input on the measures needed to develop an EU single market for personal pensions. This request was followed by a formal call for advice in July 2014.

Following a number of consultations, public events and interim reports, EIOPA finalised its advice in July 2016. The timeline on pages 36-37 illustrates the comprehensive work done by EIOPA on this important project.

In its advice, EIOPA argues that harmonising the current EU framework for all existing PPPs is not the best solution

EIOPA’S PREPARATORY ROAD TOWARDS ITS ADVICE EU COM Call for advice to EIOPA to develop an EU Single Market for personal pensions

EU COM White Paper on Pensions: Increase private retirement savings 02/2012

36 —

>

07/2012

EIOPA Discussion paper on a possible EU Single Market for personal pensions

EIOPA creates task force on personal pensions

>

01/2013

>

— Supplement 09-10 / 2016 — Investment funds

05/2013

EIOPA Preliminary report on personal pensions

EIOPA (I) Public event on personal pensions

>

06/2013

>

02/2014

EIOPA (II) Public event on personal pensions

>

04/2014

EUROPEAN OVERVIEW

to promote the development of a single market for personal pensions. This approach would have a maximum impact on national regimes and would need to be applicable in every member state.

This would represent an immense change, which is beyond what can be considered to be politically acceptable by member states.

What EIOPA recommends instead is to create a pan-European personal pension product (PEPP) with the following key standardised features: l a retirement objective; l one or a limited number of investment options to facilitate consumers’ choice. A default investment option entailing a life-cycle strategy or a guarantee, which could be distributed online without advice; l clear and transparent information about costs, fees and performance; l an individual account into which the contributions could be paid; l a “UCITS like” product passport supported by an efficient notification procedure should enable providers to offer the PEPP on a cross-border basis.

Beyond these elements, EIOPA proposes to allow national authorities regulate certain aspects of the PEPP, such as the provision of biometric and financial guarantees, the specification of pay-out options, and the imposition of caps on costs and charges.

According to EIOPA, the advantage of this two-track approach is to combine the desired advantages of standardisation in a currently inefficient market with the flexibility and adaptability that is needed to accommodate national specificities and individual consumers’ needs.

The standardised elements of the PEPP would be re gulated via a so-called second regime regulation that would sit beside national PPP regulation without imposing any constraints on existing national regulation of personal pensions. Under this framework, the products that would comply with the PEPP regulation would benefit from an EU passport for cross-border distribution. The providers that would prefer to continue offering PPPs regulated at national level would not have to comply with the PEPP regulation.

B ER NAR D D ELB ECQUE Senior director, economics and research at EFAMA.

07/2014

EIOPA (III) Public event on the creation of a PEPP

EIOPA Consultion paper on the creation of a PEPP

EU COM Follow-up call for advice

>

07/2015

>

09/2015

EIOPA Consultion paper EIOPA’s advice on the development of an EU Single Market for PPP’s

EIOPA Survey on the attractiveness of a PEPP

>

11/2015

>

02/2016

EIOPA Final advice & COM consultation

>

07/2016

Supplement 09-10 / 2016 — Investment funds —

> — 37

EUROPEAN OVERVIEW

EFAMA and its members strongly believe that a PEPP will bring clear benefits both to providers and consumers, as shown in chart 2. The creation of a PEPP would increase choice for consumers and facilitate their mobility through the portability of their personal pension savings. The PEPP would also enhance competition between providers, enable scale economies, thereby reducing costs and providing better returns to consumers.

Full support from the investment management industry for the PEPP

We also believe the PEPP has the potential to become a mass-market personal pension product accessible to all EU consumers. To achieve this goal, low cost, simplicity and digital access will be key elements, in particular to target techsavvy Millennials. Young workers who plan to work and live abroad in different member states will be a target group with a high potential to invest in a PEPP. The investment management industry considers that the PEPP should be seen as an integral part of the European Commission’s goal of building a Capital Markets Union. Today, the proportion of (euro area) households’ financial wealth held in bank accounts (41 percent) is far from optimal. The PEPP has the potential to boost the flow of retail savings into capital markets and therefore the provision of long-term stable funding to the European economy. An enlarged, more diversified allocation of savings would also increase the likelihood of obtaining higher returns, especially considering the long-term investment horizon of retirement savings.

The most attractive feature of the PEPP for providers will be the potential scaleability in the personal pensions market. This prospect will convince many fund managers to leverage their experience in the UCITS market to offer the PEPP on a cross-border basis. Whilst recognising that the different tax treatment of personal pensions will add complexity in the cross-border provision of the PEPP, a survey of EFAMA’s corporate members (published last year and available on www.efama.org) showed that asset managers would deal with the different tax regimes by relying on third-party local distributors or outsourcing this task to a dedicated service provider. The success of the PEPP in becoming a true European vehicle for personal retirement savings will be all the greater if the following conditions are met: l tax incentives: the PEPP should benefit from the same tax incentives as existing PPPs at national level; l no gold-plating: the more national 38 —

CHART 1: STRUCTURAL FAILINGS OF THE PERSONAL PENSIONS MARKET IN THE EU The limitations of the current structure of the market for both providers and consumers.

Current landscape for providers

CHART 2: ECONOMIC RATIONALE FOR THE CREATION OF A PEPP PEPP will bring clear benefits both to providers and consumers.

Benefits for providers

Current landscape for consumers

Benefits for consumers

Different national product rules

Limited product choice

One EU product regulation

Increased product choice

Barriers to entry/Limited competition

High cost/ Low return

Access to national markets

Lower cost/Higher return

High production cost

Uneven product quality

Economies of scale

High-quality product

High-cost distribution channels

No portability

Low-cost distribution channels

Portability

specificities, the less likely it will be profitable to offer the PEPP on a cross-border basis; l regulatory certainty: adopting a regulatory regime that is well-known by member states and the industry will encourage potential providers to make the necessary investment to enter the PEPP market; l no new stand-alone regime: no additional regulatory burden should be created for PEPP providers that are authorised according to European legislation.

“Harmonising the current EU framework for all existing PPPs is not the best solution to promote the development of a single market for personal pensions.”

EIOPA

— Supplement 09-10 / 2016 — Investment funds

It is important to bear in mind the timetable

Now that EIOPA has finalised its advice, the ball is in the European Commission’s court.

With a view to taking a decision on the feasibility of a European personal pension framework, the commission has commissioned a study to describe the tax requirements applicable to personal pension products within all 28 member states and identify the five most successful personal pension products. The study should also conduct a feasibility analysis of a possible European personal pension framework to foster simple, efficient and competitive personal pensions within the EU. In addition, the commission launched on 27 July a public consultation on a potential EU personal pension framework.

Whilst appreciating the importance of developing the best possible framework for the PEPP, we hope very much that these initiatives will not unduly slow down the project. Judging by the experience of the European long-term investment funds, it will take at least two years to reach an agreement

between the European Parliament and Council, after the publication of the Commission’s proposal. Given that the next European election will be held in May 2019, it would be desirable if a draft PEPP Regulation could be published in the first part of 2017 to ensure that it could still be adopted within the current legislative term.

Keeping this timetable would allow the commission to simultaneously a c h i e ve t wo go a l s , i .e . f u r t h e r strengthen the foundation of the Capital Markets Union and address the long-term interests and needs of citizens in terms of retirement savings.

EIOPA has cleared the road towards a single market for personal pensions.

It is now up to the commission to complete the work on a timely basis.

72

The number of different personal pension products (PPPs) in Europe (source: EIOPA).

77%

More than three quarters of PPPs assets are concentrated in the Netherlands, the UK and in Belgium (source: EIOPA).

82%

The proportion of PPPs which are covered by the Life Assurance directive.

EUROPEAN SINGLE MARKET

G UDRUN G OEB EL Executive director operations of FundRock Management Company.

40 —

— Supplement 09-10 / 2016 — Investment funds

EUROPEAN SINGLE MARKET

LEGAL FRAMEWORK VS. INVESTOR PROTECTION

Changing distribution models G U D R U N G O E B E L ( F U N D R O C K M A N AG E M E N T C O M PA N Y ) |

MAISON MODERNE

Investors, distributors and fund firms have evolving needs.

Truly harmonised rules are a work in progress.

T

he landscape of fund distribution is and always has been subject to seemingly endless changes. In addition, investors’ motivations and interests are evolving from generation to generation.

To remain in the game, distributors are required to keep adapting their approach to deal with technological and regulatory developments and changing investor profiles.

At the same time, the lack of a harmonised framework for fund distribution within the EU continues to make cross-border fund distribution complex and costly. Luxembourg, the centre for cross-border distribution, is very much at the forefront of initiatives to harmonise the market, supporting the develo p m e n t o f n e w p ro d u c t s , n e w technology and new ways of distribution.

In this environment, it is crucial to be close to the market – aware of changing market practices and new regulatory initiatives – to be able to adjust and remain competitive.

A new generation of investors will redefine the way to invest

A recent paper published by the Association of the Luxembourg Fund Industry and Deloitte Luxembourg, How can fintech facilitate fund distribution? (available on the Deloitte website), described expected changes in wealth allocation and investor attitudes.

Their research suggests that by 2030, Millennials and Generation X investors will account for half of the assets under management. One can be sure that their attitudes towards investment and saving will differ from that of the majority of today’s investors.

Millennial and Generation X investors have three expectations: First, with their “do-it-yourself ” approach, young investors expect to

be able to manage their investments themselves.

Second, the investment process needs to be simple and easy.

Finally, quick and affordable investment advice. In general, every service needs to be available on a 24/7 basis.

To a certain extent, the investment advisory sector has already been undergoing big changes with the introduction of the Retail Distribution Review in the UK and the revision of the Markets in Financial Instruments Directive on the horizon. Furthermore, new technology developments such as robo-advice and blockchain are coming to the fore and are adding a new dimension of possibilities.

Asset managers who want to remain successful will need to update their offering and build on technological developments to facilitate new ways of investing.

Q u i c ke r a n d e a s i e r w ay s o f on-boarding investors are required to replace seemingly burdensome procedures that can make it difficult to c o nv i n c e yo u n ge r i nve s t o r s t o undergo such a process. To ensure their model is viable, it is crucial for asset managers to work with strong partners who can provide guidance on the specific requirements per market and who can give them comfort on the viability of their model.

Changing product preferences

We are seeing a general change in the products being invested in. Of course, preferences depend on the type of investor; nonetheless there are four clear trends toward: First, simpler products. There seems to be a need for more simplicity in products, especially for retail investors.

Next, more transparent products.

Investors are seeking clarity on the cost related to their investments.

They want to be able to compare products. The Packaged Retail and Insurance-based Investment Products directive will hopefully satisfy this need and provide an easier way for investors to compare one investment fund to another, as well as to compare investment funds to other types of investment products.

Third, cost-effective products.

Especially in a low performance investment environment the significance of cost increases. This is putting investment funds under pressure to develop products that achieve sufficient volume to generate good economies of scale.

Fourth, responsible investment products. There is growing investor interest in responsible investment funds, especially as their performance is often comparable to other products.

In addition, the general availability of information today means that investors are better informed than ever. As a result, asset managers are required to satisfy the need for further information – preferably in a way that is easy to access and to understand for investors – to demonstrate to investors that investment funds are a long-term, responsible and profitable investments for them.

Distributors are identifying new approaches to remain successful. With the ban of inducements where “independent advice” is provided, many investment firms creating and/or distributing financial instruments are reviewing their existing distribution models. It can be expected that fewer distributors will be interested in the label of being an independent distributor, as it prevents them from

Supplement 09-10 / 2016 — Investment funds —

— 41

EUROPEAN SINGLE MARKET

New technologies to invest New generation of investors

Distributor’s needs

Differences in cross-border marketing rules

Inducements ban

receiving commissions from investment fund managers.

In addition, some distributors might launch their own products, using sub-advisors to handle the investment management. For example, they may choose to create an umbrella fund that rents out compartments to sub-investment managers.

This would enable the distributor to benefit from the management fee, while the investment decisions are handled by the sub-investment manager.

Also, some distributors might change their model to offer distribution platform services. This model would enable them to charge a fixed fee to all users of their platform and additional fees for value-added services, such as investment advice or robo-advice, to name two that could be offered.

At the same time, the use of social media will be more and more important in the distribution of funds, as it enables faster communication (almost in real-time) with a larger audience than that reached via traditional means of communication.

Lack of harmonisation

A harmonised EU distribution framework and marketing rules could simplify cross-border distribution and create economies of scale leading to larger investment funds.

Looking at the spirit of the UCITS directive and AIFMD, the goal has 42 —

Cost pressure

Distributors are identifying new approaches to remain successful.

24/7 investments

Need for simpler products

More transparency Markets looking for higher yields

always been to achieve a single framework. Unfortunately, local rules for fund distribution continue to vary a lot. In some cases, country-specific regulations even contradict each other. This can make it challenging for investment managers to manage the global distribution of their funds.

Examples of the lack of harmonisation across the EU include: l regulator fees and how they are processed: there is no consistency in cost or invoicing; l type and role of distribution agents required per country: paying, representative and information agents are needed in some countries, but not in others; l local marketing regimes: possibilities to test a market, treatment of reverse solicitation and private placement regimes are just some examples of how local marketing regimes differ; l required addendums: disclaimers required for prospectus and annual reports differ country by country; l pre-approval of additional marketing documentation other than prospectus and the Key Investor Information Document: this is required in some locations (for instance, Belgium) but not in others (like the UK); l tax and regulator reporting requirements.

It is nearly impossible for investment managers to create cross-border funds, without the support of professional legal and tax advisors. Many end up creating

— Supplement 09-10 / 2016 — Investment funds

ASSET M ANAGER S who want to remain successful will need to update their offering and build on technological developments to facilitate new ways of investing.

separate regimes for each of the countries into which their fund is distributed.

To create a true European single market, a harmonised distribution framework is required. First steps have already been taken by the European Commission, which has recently formed an expert group to review barriers to free movement of capital in the context of the Capital Markets Union. Some management companies, including FundRock, were invited to participate in a stakeholders’ meeting of this group in July 2016 to highlight conc rete examples of cross-border distribution barriers faced by investment funds and their consequences. The goal was to provide a better picture of the impact this is having on investment funds, the additional costs this creates for investors and what could be done to improve the situation.

The investment fund environment is changing on an ongoing basis. While regulators are seeking to find the right balance between providing a harmonised legal framework to govern the industry and strengthen investor protection without pushing up the cost of the end-product too much, investment managers are seeking to develop return generating strategies that satisfy changing investor requirements and that are in line with market, legal and technological developments. To achieve this, they need strong partners to help them manage the complexity of fund governance and cross-border distribution with investors’ best interests in mind.

www.kneip.com

Data & Reporting for the ďŹ nancial industry FinTech since 1993

NEW HORIZONS

assets under management weighed €3.5 trillion, an increase of nearly €1 trillion within five years.

Distribution: where to?

JOSÉ-B ENJ AM I N LONGR ÉE Global Fund Distribution leader, PwC Luxembourg

There are still many regulatory changes looming, which are going to have an impact on distribution and that is without mentioning what has already changed, as well as the upcoming likely technological advancements. The recent European Commission’s consultation on cross-border distribution of funds focussed on a number of areas including, inter alia, the notification process, fees, tax implications and marketing rules. This was a good opportunity for fund industry players to raise their concerns and assist in reducing some of the barriers to a greater harmonised distribution landscape in Europe. With AIFMD now fully up and running for over two years, we have to consider the positives of the regime and the passporting opportunities, as well as the potential outcome of the expansion of the passport to third countries. In addition, we must look to what the future might hold with AIFMD 2, due in 2017.

Hot spots: myths and realities

FUND DISTRIBUTION WORLD TOUR

Check your passports J O S É - B E N JA M I N LO N G R É E ( P WC L U X E M B O U R G) |

What do Albania, Armenia and Azerbaijan all have in common?

44 —

A

MAISON MODERNE

ll these countries appear on the PwC Global Fund Distribution benchmark map for the first time in our 2016 edition, having each been targeted by one UCITS fund manager during the 2015 calendar year. Now, these don’t automatically jump out at you as potential hotspots for fund distribution, but there’s a growing trend for ‘new world’ countries for distribution, perhaps similar to what we experienced with new world wines coming from Australia, Chile and New Zealand a number of years ago.

In addition to these lesser-targeted countries, we’ve also seen demand for distribution in Curaçao and Israel, to name but a few. Luxembourg’s first-mover advantage combined with

its inherent assets – central location within the EU, responsive regulatory framework, financial infrastructure and resources – have allowed its development as a hub for investment funds and their global distribution.

It handles the back-office functions and distribution for 70% of asset management giants, who chose the country as the first domicile to set up their funds.

According to PwC Luxembourg’s latest Global Fund Distribution Poster — which was released on 8 March 2016 and can be downloaded from pwc.lu — the fund industry continues to grow, with 11,222 funds distributed in at least three jurisdictions against 10,430 in 2014, representing a 7.6% growth over the period. At the end of 2015,

— Supplement 09-10 / 2016 — Investment funds

UCITS has been so successful that we see other geographies trying to replicate a similar framework, case in point being Asia, with the ASEAN Collective Investment Scheme (CIS) initiative and the APEC Asia Regional Fund Passport (ARFP). However, both of these initiatives face their own challenges. At the time of writing, there were less than 20 funds that had taken up the passporting opportunities offered by the ASEAN framework; additionally, negotiations for the ARFP have currently stalled due to lack of agreement from all potential countries as to the treatment of their funds in each country versus that of the domestic funds.

An interesting point to note for new hotspots is Curaçao’s success in 2015.

Having not previously had any registrations from UCITS funds, the country saw 29 funds registering for distribution last year. Another location to keep your eyes on in the future is Israel. There are apparently billions of Shekels available for investment on a daily basis, but also a lack of domestic products to fully absorb them and, consequently, it’s pleasing to see that they’re paving the way to allow greater access to foreign managers.

Asset managers have been looking for opportunities beyond traditional markets for some while and will continue to do so in the future. This shouldn’t be perceived as a threat by mature financial centres in Western Europe, but rather as an opportunity to strengthen their successful products, embrace new technologies and strive for innovation.

TECHNOLOGY

DIGITALISATION

Printing buildings N AS I R Z U BA I R I ( F I N T E C H ADV I S O R A N D I N V E S TO R) |

MAISON MODERNE

What will financial services look like in a digital world?

Firms will need to decide how, not if, they should adapt their strategies.

O

ur environment is changing trends also play their part in driving at incredible speed. Advances changing behaviours. “Helicopter in technology are fundamen- Parenting”, “Self-Reliant Go-Getters” tally shaping our habits and and “The Cult of Me” are some of the behaviours. Looking ahead a decade, terms used to describe the prevalence new technology will be enabling us of increased multi-tasking, the shift in so many ways. Wearable techno- in reliance on expert opinion to selflogy and home dispensing devices will trust, greater belief and confidence feed information directly to your doc- in our own decision making and tor and 80% of all doctor visits will actions, and the epidemic of narcishave been replaced by automated and sism with its force for individualism. home examinations.

Can we contest that, in this world Nano-bots will be staples of surgi- of the near future, the way we access, cal procedures, cleaning arteries, interact with and deliver financial serremoving tumours vices will be anything like today? and performing cellular level repairs.

Can financial ser90% of all restaurants vices firms contiNew tech solutions will use some form of nue to effectively 3D food printer in compete without are enabling asset their meal preparatechnological innomanagers to deliver tions. A large number vation, without adopting new of highways will be services to clients methods of delidesignated for driat a greater speed. very to satisfy verless vehicles only. client expectaPrinted buildings will tions, without comprise over 20% of construction projects. We will see the leveraging technology to reduce opefirst city harvest 100% of its water sup- rating costs, to deliver new products ply from the atmosphere. Nearly all user and to service new markets? What interfaces will be voice or gesture will be your institution’s five-year controlled and our senses will be aug- plan in 2020 to meet the vision of mented with technology, mixing digital 2025, to ensure you achieve your content into the physical world. business growth goals and to remain Our environment will be res- competitive? What do you need to ponsive and will adapt to our beha- be doing now? viours and reactions. All types of advertising will be targeted and per- Transformation for effectiveness sonalised using various data sources Transformation is occurring within specific to us as individuals triggered financial services. Investment manavia facial, voice, smell, fingerprint gement and wealth advisory are chanand action recognition. Our homes ging. New technology and business will be smart, connected and will models are providing ways to increase make autonomous decisions, conti- revenues, cut costs, fulfil legal requinuously learning about and adapting rements or increase productivity to our lifestyle. Economic and social across all layers of the value chain.

46 —

— Supplement 09-10 / 2016 — Investment funds

The hype rests in solutions that directly enhance value for clients.

Robo-advisory services reduce costs and provide more user-friendly portfolio management tools for clients and/or allow managers to effectively target new markets, utilising multiple distribution channels that include mobile and tablet, meshing with their client’s addiction.

Some services enable access to new product sets such as private equity, or fixed income products such as P2P loans. Others focus on providing greater transparency and flexibility in areas such as pensions and savings. These services, part of the movement known as FinTech, are denoted as “disrupting wealth management” by many influencers and in the media, though perhaps it is more reasonable to view them as a natural evolution of services as a result of available technology and progressive user needs.

Garnering increasing focus and perhaps more relevant for traditional managers are the FinTech services delivering innovations in processing through platforms and infrastructure.

Today, up to 10% of securities trades are subject to various errors, leading to manual intervention and extension of the time and cost to settle trades. FinTech firms and consortia focusing on applying blockchain to the clearing and settlement of securities such as equities, repo and leveraged loans could, according to Goldman Sachs, save $11-$12 billion in fees, operating expenses and capital charges by helping to move the industry to a shorter, more secure and reliable settlement window.

A European Parliament resolution on 26 May 2016 in relation to distributed

TECHNOLOGY

ledger technology, blockchain and virtual currencies, stipulates that as much as €50 billion per year can be saved in post-trade processing costs through the application of these new technologies. A clearing system based on blockchain technology would fundamentally eradicate the duplicative, often still manual, affirmation and reconciliation of trades across all participants in the process.

Settlement instructions would become a pre-trade requirement (data shared amongst all) included in a smart contract, rather than confirmed by multiple parties in a post-trade process.

Streamlining connectivity

NAZI R ZUB AI R I FinTech advisor and investor

The next generation of wealth management technology is simplifying connectivity between asset managers and managed account sponsors, streamlining workflow and delivering greater efficiency – reducing costs and errors. As a result, new tech solutions are enabling asset managers to deliver services to clients at a greater speed – improving timeliness and customer satisfaction. In today’s digital world consumers expect access to their information when and wherever they want, on any device.

According to Cerulli Associates, managed accounts are expected to grow at an average of 16% annually to over $7 trillion in assets under management by 2018. Growth, however, is hampered by inefficiencies and the absence of industry standard communication. Multiple sponsor platforms require managers to access different systems to perform manual, repetitive processes. Asset managers, sponsors, custodians, advisors, even vendors and partners – for everyone in the wealth management industry, connectivity has been historically disparate and inefficient. Working with multiple sponsors across various platforms that have their own customised processes and file formats is costly and prone to errors.

Technology is now solving these challenges and providing an industry standard for trading and communicating across platforms, simplifying connectivity for managers through a single point of access and allowing a greater oversight while reducing inefficiency and risk. In short, technology is providing entry into a much larger marketplace for wealth management industry participants.

Strategies to embrace innovation

Traditional firms have reacted to the innovation revolution in various ways.

The response has itself evolved. At the seeding of FinTech a few years ago, innovation in services was Supplement 09-10 / 2016 — Investment funds —

— 47

TECHNOLOGY

SEGMENTATION OF CLIENT-ORIENTATED INNOVATION IN WEALTH MANAGEMENT

Robo-advisory Direct to consumer, pure digital platforms that utilise algorithms to categorise risk tolerance and provide universal access to investment portfolios

PFM B2C solutions that help consumers track, budget and/or make the most out of their money

not a primary concern for most in finance.

If paying any attention to the wave of start-ups focusing on financial services, most did not contemplate a threat or potential opportunity, so FinTech firms were largely ignored.

As traction in FinTech grew, many traditional firms became suspicious of the part these firms would play in the sector and aware of the risk of disintermediation or competition. Banks in particular worked to hinder FinTech progress through restricting access to financial services rails and accounts.

Today we are at a point where the financial services sector has awoken to the opportunity posed by innovation and an environment where most traditional firms are combining a number of strategies to extract value: l

l

l

Compete/Internal innovation: Do as the start-ups do; shift culture, redesign processes related to technology as an enabler. Re-frame the business as a technology business, e.g., BNY Mellon innovation centres.

Invest: Gain exposure to FinTech start-ups that could add strategic value by becoming shareholders.

Learn through exposure and collaborate with vested interest, e.g., AXA Strategic Ventures.

Acquire: Shortcut innovation to end products, de-risking execution and technology to integrate solu-

48 —

Pensions Direct to consumer, providing better information and more transparency for retirement planning

Data Consolidated data and analysis with rich user experience to better inform investment decisions

B2B platforms B2B2C platforms, enhancing offerings from traditional wealth/asset managers & advisors to clients

tions for timely value extraction, e.g., BBVA. l

l

Collaborate: Partner with/become customers of promising FinTech businesses, leveraging each others core capabilities for mutual benefit, e.g., Goldman Sachs, Vanguard.

Coopetition: Work with FinTech firms directly or via consortia to build solutions that deliver value for all partners in competition, e.g., R3 blockchain consortium.

As well as focusing on their own innovation strategy, industry participants must come together in cooperation, working with agile FinTech firms to develop an industry platform for the future bringing data, sponsors, managers, custodians and third parties together in a way that leads to enhanced efficiency and cost reduction. Tangible benefits must be shared with clients, ensuring long-term competitiveness, offering clients a service that is truly suited to their everyday needs in an increasingly digital world.

For sure, ignoring the progression in customer behaviours and not investing in technology as a tool for efficiency exposes to significant risks in achieving growth goals and will likely instigate a fight for survival down the road, whatever the firm’s role in the industry, no matter the perceived loyalty of the client base. A proactive approach to innovation and FinTech must be a priority.

— Supplement 09-10 / 2016 — Investment funds

Savings B2C platforms that provide more transparency and easy access to best savings products

Brokers Providing easy and low cost access to new and traditional asset classes for retail investors

FINTECH

STRATEGIES FOR ENGAGING IN INNOVATION Ignore No threat nor opportunity perceived l Business as usual Compete Business believes it has the internal capabilities and resources to steer its own innovation path l Internal innovation centres l Re-culture l Re-frame l Incubators Invest Business wants to wait and see how particular areas of innovation can truly add value l Corporate venturing l Capital silos l Accelerator sponsorships l Start-up knowledge banks Collaborate Business believes it is too large to change drastically, seeks to leverage agility and approach of FinTech firms l Accelerator programs/sponsorships l Start-up challenges/comps Acquire Business wants to contain and benefit from innovation, but too large to change itself l Corporate venturing l Strategic sponsorship l Start-up knowledge banks Coopetition Business believes its problems are shared and leveraging others expertise will lead to greatest benefits l Applied labs l Venture design programs l Collaborative research programs

WHERE YOUR SOCIAL AND ENVIRONMENTAL STRATEGIES MEET CONCRETE SOLUTIONS

EIIP

European Impact Investing Platform

The first fully regulated AIFMD umbrella fund in the world entirely dedicated to Impact Investors.

With its wide investor base, EIIP is the perfect solution for promoters interested in developing their impact sub-funds within a turnkey vehicle.

Through EIIP institutional investors benefit from a broad portfolio of social responsible investment opportunities.

www.selectra.lu www.eiip.fund info@eiip.fund

REGULATION, TAX & PENSION

INDUSTRY CHALLENGE

The regulatory and tax landscape: a never-ending story?

PAS CA L E L E R OY ( K P M G L U X E M B O U R G) |

How many times a week are we complaining about regulation?

New regulations often mean operational challenges for asset managers and continuous changes to business models.

But are we right to complain?

O

MAISON MODERNE

ver time, laws have progressively shifted from being purely regulatory in nature, to being strategies for more transparency and fairness in business.

What’s notable today is the overlap between the eagerness to regulate industry practices on one hand, and the need to advance the economic growth agenda on the other. To assess the social and economic well-being of laws, let’s go back to basics. Fiscal laws were once primarily meant to finance states — their organisation and policies (social, economic, environmental, cultural, etc.) — and ensure that every citizen participates fairly according to his or her income. Over time, international tax treaties have promoted

cross-border development, while avoiding double taxation. In parallel, for more than 30 years, European directives and regulations have promoted and assisted the development of the UCITS brand, enabling cross-border distribution while ensuring investors’ protection. The 2008 financial crisis was a shock for most politicians and regulators. And Europe, inspired by the G20 leaders, reacted by triggering the so-called “regulatory avalanche” — but why the term “avalanche”?

Because it came suddenly, with an unprecedented volume of new rules aiming to bring solutions in the short term. After that, the industry was supposed to take a breath in order to refocus on its development. Did that really

PASCALE LER OY Partner, KPMG Luxembourg

50 —

— Supplement 09-10 / 2016 — Investment funds

happen? No, and understandably enough: it wouldn’t have been realistic to think that, suddenly, our representatives and regulators could stop thinking about industry challenges and opportunities, knowing the volatility of capital markets and the need to boost the economy.

Politicians have been criticised on the complexity of regulations like AIFMD, EMIR, and MiFID, which has triggered a new type of regulation, one focused on greater information sharing and on communicating the potential risks of the industry and market to investors. International collaboration, in turn, has improved: working with EU member states, the European Securities and Markets Authority has put in place extensive reporting requirements (EMIR, AIFM, and recently UCITS), generating massive amounts of data and statistics at an international level. In parallel, national and regional regulators have begun to focus on funds’ busine ss models in order to detec t undesirable practices, questioning the rationales of expenses or share classes.

And local or regional initiatives have led to debates on new types of investment products, such as ELTIF or RAIF, considered to be business opportunities and drivers of economic growth.

Nor have fiscal laws escaped the trend. They also exhibit some overlap between the eagerness to regulate international taxation and the need to improve the financing of small- and medium-size companies and long-term projects. BEPS (with its standardised country-by-country reporting), implemented by the G20 and the OECD, aims to prevent unfair use of taxation at the international level. On the other side, one of the key principles of the Capital Markets Union is to create a single market for capital by removing barriers to cross-border investment within the EU and to promote stronger connections with global capital markets.

So, is regulation a “never-ending story” with only negative outcomes?

No. But from an economic growth perspective, there is a case for possible simplification and harmonisation of regulation, which sometimes can be a more difficult task to achieve. Even if it may lead to more complexity and increased compliance costs, regulation has positive impacts. It contributes to a better understanding and risk management of the fund industry. It promotes an environment that drives economic growth and fairer capital markets. Without adapting our regulations, we would not be in a position to defend the UCITS brand and to develop innovative products that respond to the needs of our global economies.

We provide the masterpiece to ground your business Choosing and structuring the proper investment vehicle in permanent respect of investors take in-depth technical and market expertise. It requires a unique combination of regulatory, compliance and transaction know-how.

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Berlin, Brussels, Cologne, Dusseldorf, Essen, Frankfurt a. M., Hamburg, Hanover, Leipzig, London, Luxembourg, Munich, Shanghai, Singapore, Stuttgart, Yangon

Legal Advice | www.luther-lawfirm.lu

TRENDS

TECHNOLOGY VS HUMAN

Change in distribution models – investor, distribution and market needs O L I V E R B I L A L ( U B S) |

MAISON MODERNE

A new generation of investors have different expectations that the funds sector will need to meet.

While top-notch technology will certainly be key, for some investors, the human touch will play a more leading role.

D

istribution models are chang- cipline is not an extension of the IT funcing along with customer tion, but represents a mindset shift in requirements and behaviour. how we engage with customers and These trends are far from within our firms. To get this right, digiover and this pace of change towards a tal needs to be embedded throughout new era for investing is gathering the organisation’s DNA, and not just in momentum. This shift is underpinned marketing and sales but also in the by three key factors: digital technology, back-office functions. For all asset manevolving demographics and the rapidly agers, this requires a very deep rethinkgrowing trend for sustainable investing. ing of business and operational models Clients already rely on unprece- as well as retraining of staff. Technical dented amounts of data now available change continues to accelerate, driving greater transparto them; they are ency and realalways connected via time information their mobile devices sharing. This will and expect personalDigital change both the ised and informative advancement will way we work but communications from most importantly financial institutions. drive further what investors Today, investors can transparency want from asset no longer be simply managers. classified by the size of on fees, portfolio L e t ’s t a ke their assets, we also holdings and the robo-advice, the need to understand term used for their preferences and social impact of automated investthe customer experiour investments ing. This type of ence they have with all service has grown the touch points in ways that within an organisainto a $50 billion deeply influence tion. Requirements industry in the US alone, dominated are no longer limited investor’s choice. by t wo large to returns, but also incumbents, Vaninclude a better understanding of desired outcomes and of guard and Charles Schwab. They have how investments are providing a posi- proven this new channel is a popular tive and measurable impact on society choice for investors and not just the tech and the environment. savvy ones but also more traditional clients, who are ready to take their advisor out of the equation in favour of reducing Digital technology Digital technology is becoming the most fees and benefiting from the convenience important and a frequent interaction of a smartphone application. Just as channel for investors. However, this dis- smartphones are the preferred way for 52 —

— Supplement 09-10 / 2016 — Investment funds

us to do our retail banking today, they will also become the preferred channel for investment decisions. And this is before we factor in the rapid advances made by artificial intelligence or machine-learning applications across all industries.

Other technologies, such as blockchain or new ways of investing, such as P2P lending or crowdfunding, will further influence the distribution landscape. Speed of customer adoption into new asset classes is growing at over 100% per year in some cases. Digital advancement will drive further transparency on fees, portfolio holdings and the social impact of our investments in ways that deeply influence investor choice. Regulators will also continue to drive transparency to reduce investment risk, increase choice and ensure the industry benefits the end investors above all others. Technical improvement will also help regulators become proactive rather than reactive when things do not go the way they should.

The way products will be marketed to end investors will also evolve: to compete, we will need to ensure the right information is communicated through the right device at the right time and in the right format, all in a highly personalised way.

Evolving demographics

Distribution channels will become increasingly direct. The nature of digital is to remove the intermediary by bringing customers closer to product manufacturers. Although most asset managers have been reluctant to engage with end investors, this will need to change, even

TRENDS

OLI VER B I LAL Head of EMEA Asset Management at UBS

for the relationship managers taking care of institutional investors.

The global population is living longer and not saving enough for retirement.

By 2025, we will not only have more retirees than those working in many “western” markets, but Millennials will also represent 75% of the global workforce. Traditional business models will no longer be relevant as our understanding of the investor we had served for the past 50 years will no longer exist.

As populations age rapidly and as life expectancy increases at the same time, we can also expect a phase of de-investing. A growing number of pensioners will no longer invest but will instead live off their investments. This will inevitably have a negative impact on asset prices, mostly equities. Consequently, long-term asset values for developed market equities may suffer whilst less liquid alternatives could benefit.

Indeed, a combination of factors – most notably changing maturity profiles – have led defined benefit schemes to shift holdings from equities to fixed income assets in recent years.

The graph on page 54 shows defined benefit plans’ asset allocation in the UK between 2006 and 2014. Allocation to equities almost halved over that period, falling to 35%, while weightings to fixed income and cash instruments have gradually increased. To maintain living standards, we can also expect significant political and regulatory changes. These may include postponing the retirement age, as well as a more rapid shift of the retirement cost from governments to individuals, just as we saw with the shift from defined benefits to defined contributions.

In this regard, regulatory and fiscal policy in the form of compulsory pension saving and promotion of tax-efficient savings schemes are likely to be tools more widely used by governments to alleviate this burden, which often represents their highest liability. Europe, Japan and the US will be the most impacted by this trend. Women will also represent one of the largest new customer segments. Traditionally, our industry has not thought of strategies to attract them and this will also have to evolve. Preferences across the genders are being better understood, as the industry learns how to better serve a segment that is sophisticated in ways that have previously not been considered.

An illustration of this is the growth of ultra-high net worth females who rate the personal relationship with their advisors as one of the first criteria to remain with a wealth manager, along with a proven track record. Consequently, in order to target this segment successfully, advisors and sales teams will need to be more diverse and marketing messages will need to become more sophisticated.

Supplement 09-10 / 2016 — Investment funds —

— 53

TRENDS

54 —

2006

2010

2014

70 60 50 40 30 20 10 0

Equities

Fixed income

Other

Cash

Hedge funds

SUSTAINABLE ASSETS ARE GROWING IN EVERY REGION Europe is leading, but US is the fastest growing region.

Asia

Proportion of sustainable assets relative to total managed assets Europe

Australia/NZ

Canada

60% 50% 40% 30% 20% 10%

0.8%

Canada

4.4%

Asia

Global

Global

30.2%

2012

2014

Growth of sustainable assets by region 2012-2014

Europe

63.7%

80% 70% 60% 50% 40% 30% 20% 10%

61%

Trends of standardisation through robo-advice and ultra specialisation through personalisation are both occurring and will ultimately blend as digital transformation takes hold. Being middle of the road may have been a safe place to reside in the past, however in an increasingly polarised landscape, it will no longer be the case. The transition will represent a financial strain on asset managers in terms of new product development, business model reorganisation, training and technology. While investment in technology, either organic or through acquisition, will be paramount, investment in people

— Supplement 09-10 / 2016 — Investment funds

A si a To ta lG ro w th

A us tra lia

0% C an ad a

30.8%

EUR OPE is the leader concerning the proportion of sustainable assets by region.

Australia

21.5%

0%

United States

United States

will be of extreme importance too, should asset managers want to serve an increasingly complex and digitally savvy customer base, who will base investment decisions taking into account the social impact and transparency of the product structure. Solutions lacking transparency will not be a good fit with digital distribution strategies and be excluded from the consideration process. Only financial institutions that innovate their products, provide transparency and convenience will be able to thrive in the increasingly multi-layered distribution landscape that is ahead of us.

S O U R C E S : P P F 2 0 14 P U R P L E B O O K , U B S , AS O F 3 1 M A R C H 2 0 14 / G LO BA L S U S TA I N A B L E I N V E S T M E N T A L L IA N C E F R O M T H E I R 2 0 14 G LO BA L S U S TA I N A B L E I N V E S T M E N T R E V I E W. N O R M A L LY U PDAT E D E V E RY 2 Y E A R S

0.2%

St at es

The improved way we consume, recycle and use natural resources permeate all ages. However, as with many new trends, it has taken the strongest hold with the younger generations. This trend will have long-term implications.

In terms of investments, 70% of Millennials would prefer sustainable products.

At UBS, we have a dedicated Sustainable Investors Management team, who have put stringent criteria in place in terms of vetting companies with impeccable track records in terms of resource consumption and quality of their supply chains. Consequently, according to their report, UBS: A revolution in Equity Investing: a deeper dive into non-financial data, equity investing has moved from screenings based on exclusions (such as tobacco or armaments) and financial data towards identifying outperforming companies in terms of non-financial sustainable data such as brand, reputation, R&D, customer satisfaction, human capital or risk management. Back in 1975, this type of data represented 17% of a valuation. Forty years later, it has reached 84%. Now intangible assets calculations have become standardised, equity investors find it easier to build a comprehensive picture of a company’s future growth prospects.

As we strive to contribute to a better world in different ways, UBS and Society, a cross divisional programme, has recently launched two initiatives: the “UBS Grand Challenge”, whereby employees could submit product ideas to address world issues; “Spavest”, which will aim at taking advantage of the changes in mobile technology to create a savings solution for individuals who find it difficult to save for their retirement, will be given the opportunity to be launched to market; and our “Social Innovators” programme that addresses the investment-worthiness of social entrepreneurs. By tackling the problem at its source, companies will provide with the necessary funds to invest in resources and technology to become more visible by equity investors.

As we look at those factors, we can ask ourselves the question whether there could be a contradiction in terms of trends. As we lean towards automated advice for portfolio management, would the increasingly complex and sophisticated client segmentation warrant for more tailor-made services?

Share of assets invested in corporate DB pensions, by asset class, in %

Un ite d

Sustainable investing

DB PLANS’ ALLOCATION TO EQUITIES HAS FALLEN SIZEABLY IN RECENT YEARS

Eu ro pe

Worldwide awareness of the need to positively impact our planet is growing and citizens understand that this now needs to include the way they consume.

In recognition of this, a new definition of ‘green consumer’ has emerged for those that base purchase decisions on factors primarily depending on environmental and social good.

BUSINESS LOCATION

INTERNATIONAL FUNDS CENTRE

What is Luxembourg’s secret?

S T E P H E N E VA N S |

M I K E Z E N A R I (A R C H I V E S)

Speedy adoption of the EU’s UCITS rules made the Grand Duchy an international funds centre.

Flexibility and attention to details remain keys to the sector’s success.

t seems improbable that one the 100 leading cross-border fund manof the smallest countries in agement companies in Europe, 98 have the world could become a funds domiciled in Luxembourg, with giant in the global investment 71 having at least one of their three largfund industry. Yet Luxem- est funds based here. This success stems bourg’s size is the factor that obliges it from an EU law of 1985 that created a to be open to people and new ideas. single, borderless market in European The Grand Duchy has a relatively funds. The undertakings for the collecdiverse financial sector, and a broadly tive investment in transferable securities similar formula is used for success (UCITS) directive was embraced by the in each area. Government and regu- industry, and these funds quickly became lators work with the industry to the dominant in Europe. UCITS are explore selected international mar- widely seen as providing a stable, ket niches, while maintaining a reg- high-quality regulatory framework that ulatory environment that meets global protects investors while being adaptable standards. No secto many investment strategies. They are tor has benefited more from this used for retail clients approach than looking to save a few Partnership cross-border investthousands, by major ment fund distribufinancial institutions with government tion. Funds based in investing billions, and and regulators Luxembourg are everyone in between. sold into more than A key advantage is is crucial. their adaptability to 70 countries, involvthe most common ing assets currently valued at around €3.5trn. This makes strategies. Equities and bonds were the it the second largest fund centre in the early favourites, but over time UCITS world, behind the US. became the solution for exchange traded funds, derivatives, commodities, hedge Making cross-border work fund indices and more. This success was The cross-border fund model sees hastened thanks to Luxembourg quickly investment decisions taken in the becoming a facilitator and problem world’s larger financial capitals, with a solver. By the early 1990s the country central distribution hub creating and had become the global skill centre for the maintaining the fund structure that hub-and-spoke cross-border distribution facilitates these investments. These model. funds are then repackaged and sold into different markets, thus dramati- More sophisticated and global cally cutting the cost of these complex By the 2000s, this success had piqued operations. The Grand Duchy is the the interest of fund promoters the world clear leader, accounting for 65% of all over. Europe remains the main market funds distributed cross border at the by far, but recent years have seen subend of 2015, a study by Lipper LIM and stantial cross-border use by promoters PwC has found. This is three times more in the Asia-Pacific region and Latin Amerthan Ireland, the closest competitor. Of ica, as well as the Middle East and Africa.

I

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— Supplement 09-10 / 2016 — Investment funds

More often than not they turn to Luxembourg expertise to make this happen.

Singapore and Hong Kong are the Grand Duchy’s largest markets in Asia, and much of the Chilean pension system is powered by Luxembourg funds. Various groups of countries in the Asia-Pacific region are seeking to create their own UCITS-style rules, but so far these efforts have been unsuccessful. These projects have no track record, nor do they have support from regulatory and legislative institutions such as those in the EU. A similar story is unfolding with “alternative” funds. These offer well-informed institutions and wealthy individuals the chance to invest in assets with higher risk/return profiles such as private equity funds, real estate funds and hedge funds. The Alternative Investment Fund Managers Directive was introduced after the global financial crisis to ensure that all European funds were under regulatory supervision. Within a few years, just as with UCITS, this regulation had won brand recognition, with Luxembourg becoming the global expert for their administration and distribution.

This has become an important business, with these funds accounting for around €0.5trn of the total, or 15% of fund assets based here.

Simplifying the complex

The Grand Duchy has built this success by focusing on the tricky details of making funds work. There is now a unique concentration of specialised service providers for all aspects of this business.

International and local law firms, audit firms, management companies, custodians, transfer agents, tax specialists and so on understand the complexities of working across borders. As well there are innovative outsourcing options, with

BUSINESS LOCATION

CAM I LLE THOM M ES is the director general of ALFI, the leading actor for the development of the funds industry in Luxembourg.

many of these service providers subject to financial sector regulatory supervision.

This enables entire business processes to be managed by a third party, and there are specialists who deal with procedures such as cross-border fund registration, or foreign tax certification. The Luxembourg Stock Exchange is, amongst other things, a fund industry specialist. As new products, regulations and client demand emerge, Luxembourg adapts more quickly than anywhere on the planet.

This ecosystem of support services is facilitated by a uniquely multinational and multilingual workforce. As well as the know-how gained by residents over the last three decades, Luxembourg is particularly open to immigration, actively seeking to attract talent from around the world. Around two thirds of Luxembourg’s workforce are non-nationals.

Expat residents come from more than 170 countries, and tens of thousands commute across the borders from France, Germany and Belgium. They are attracted by high salaries, but as employer taxes and social charges are modest, total employment costs are around the European average. Nevertheless, it can sometimes be a challenge to find exactly the right profiles for specialist roles.

International and local partnership

The country is also close to clients and business partners. Frankfurt, Paris and Brussels are easy to connect by car, and London, Amsterdam, Milan and Zurich a short hop by plane. All this gives Luxembourg companies deep understanding of client needs. More than just speaking the language, there is the technical knowledge about different countries’ legal, regulatory and market environments, and other subtle but important cultural nuances. Another example of this openness is how the financial sector regulator communicates and accepts official documentation in English, French or German.

Partnership with government and regulators is also crucial. They work with the industry to promote growth where possible, with laws and procedures designed in partnership. For example, in the mid-2000s the industry wanted to move more strongly into the alternative fund business. They suggested, and ended up largely drafting the laws introducing the Special Investment Fund and the private equity focused “SICAR” vehicles. Only this July, the Reserved Alternative Investment Fund was created in order to streamline the regulatory approval process for alternative funds being sold to sophisticated investors. The legal system has been fine tuned to recognise the diversity of legal structures worldwide, and features concepts from different legal cultures.

Supplement 09-10 / 2016 — Investment funds —

— 57

BUSINESS LOCATION

T HE H O US E O F K N O WLEDG E ( ES CH- BELVA L) Luxembourg invests heavily in a research-focused university, which has finance as one of its work priorities.

Virtuous circle

Success of the fund industry is helped by, and further reinforces, the country’s wealth and stability. Luxembourg regularly tops lists of the wealthiest in terms of national income per head of population. Economic growth has averaged 2.7% a year since 1990, the national debt is a low 21.4% of GDP, with the country’s sovereign debt receiving the highest score from the rating agencies. This enviable position anchors the country’s traditional social and political stability and consensus.

There are long-term concerns about the ability of the country to sustain its current pension and health system, and these worries spur governments to maintain high economic growth.

With this in mind, the country invests heavily in a research-focused university, which has finance as one of its work priorities. Businesses and staff are also attracted by the quality of life.

58 —

TALENT S

AN ATTRACTIVE PLACE Luxembourg’s workforce has almost doubled in 20 years while in wider Europe it has increased by less than 20%.

The country is at the heart of an extensive European talent pool: the Greater Region, which includes the adjacent regions of Belgium, France and Germany, brings together 11.5 million people. Regarding to the INSEAD Global Talent Competitiveness Index, Luxembourg is the 3rd place in the world for attracting and retaining talent.

This country of 576,249 people cannot provide the buzz of a major city, but nevertheless, the cultural and social life is surprisingly rich with a good selection of entertainment venues, restaurants and bars. It is also an attractive place to be, with historical towns surrounded by varied countryside.

Crime rates are very low and there is a wide selection of schools following the local and international curriculums.

Procedures have been refined to facilitate the re-domiciliation of funds to the Grand Duchy. This might be necessary for commercial reasons, as the fund seeks to attract investors in new ways. Also, alternative funds have moved on-shore to Luxembourg, adopting AIFMD rules to offer investors the added comfort of a more regulated environment. Then there is Britain’s decision to leave the EU. Funds that want to be sure of having long-term access to the continental European market may need to establish a base within the EU. Between 2013 and 2015, 236 fund structures merged into a Luxembourg-based fund, said the Association of the Luxembourg Fund Industry.

Local players freely admit that they have been surprised by the rapid success of the fund industry, which has gone from virtually nothing to several trillion euros in less than three decades. The model has proved to be resilient, having been tested in particular by the global financial crisis and the dotcom crash. A continued commitment to solid service laced with innovation should help sustain this further.

— Supplement 09-10 / 2016 — Investment funds

4.8%

GDP growth in Luxembourg is consistently above the EU average with 4.8% in 2015 (source: STATEC).

21.4%

Grand-Duchy is a politically stable country with very low public debt at 21.4% of GDP (source: STATEC).

#2

Luxembourg City is the 2nd best city for expats in the EU and 5th worldwide (source: Expat Insider 2015).

The Grand Duchy has built its success by focusing on the tricky details of making funds work.

M I K E Z E N A R I (A R C H I V E S)

For example, the limited partnerships and trust structures commonly used in the Anglo-Saxon sit alongside traditional continental frameworks. Government and regulators also work at the international level to ensure new and existing rules are as efficient as possible.

Financial sector regulation is an eternally controversial topic. Some commentators suggest current rules go too far, and that this environment can promote a false sense of security amongst investors. Regulation might prevent the most obvious abuses, but vigilance is always required to spot wrong-doing, they say. Many in the industry are concerned that excessive regulation from European and global bodies has the potential to stifle this industry. Others believe there is not enough control by governments, and that small countries are overly vulnerable to manipulation by multinational corporations. Luxembourg’s industry, government and regulators thus have to help promote a balance. After all, efficiently run investment funds benefit consumers who buy them, but there is a strong political consensus that regulations must be enforced efficiently to prevent unethical behaviour. The fund industry is important given its role in helping people save for retirement.

The country also comes in for criticism as a tax haven, with the fund industry often cited as an example of international finance helping wealthy people and corporations to avoid tax.

Although Luxembourg’s tax system has advantages for fund companies, clients cannot illegally evade tax with funds, as they ultimately pay sales, income and capital gains taxes in their countries of residence.

L’approche digitale pour toucher une génération connectée

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PICTURE REPORT

ALFI GLOBAL DISTRIBUTION CONFERENCE 2015

Flash-back Organised in cooperation with NICSA and HKIFA, the industry associations of the US and Hong Kong, the ALFI Global Distribution Conference 2015 took place at the Philharmonie on September 15–16. Here are a few highlights.

L A L A L A P H OTO I 4 6 P H OTO S O N PA P E R JA M . L U

4

1

2

3

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— Supplement 09 - 10 / 2016 — Investment funds

1 Michael Ferguson (EY) and Henk Ruitenberg (Eastspring Investments) 2 Alain Bastin (Bil Manage Invest) and JeanFrançois Pierrard (FundPartner Solutions) 3 Pierre Mottion (BNP Paribas Securities Services) and Rafal Kwasny (HSBC) 4 Yvan de Laurentis (BNP Paribas Securities Services), Martin Vogel (MDO Services) and Georg Lasch (BNP Paribas Securities Services) 5 Michel Ommeganck and Jorn Havik (Skagen Funds)

5

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PICTURE REPORT

1

10

6 11 2

3

7 8

4

9 5

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— Supplement 09 - 10 / 2016 — Investment funds

1 Michael Ferguson (EY), Peng Wah Choy (Harvest Global Investments Limited) and Chris Edge (HSBC) 2 Gino Micucci (F2C- Financial Communication Consult), Jean-Francois Marlière (Marlière & Gerstlauer executive search) and Bernard Lambeau (Enspirit) 3 Hasse Nelson and Jonas Rasmussen (Carnegie Asset Management) 4 Didier Kayl (Fundsquare), Anne Humbert (Numen Europe) and Olivier Portenseigne (Fundsquare) 5 Gast Juncker (Elvinger, Hoss & Prussen) 6 Andrea Cattaneo (BNP Paribas Securities Services) 7 François-Kim Hugé (Deloitte) and Renaud Oury (Kneip) 8 Jefferson Oliveira (PwC) 9 Florence Aubry and Philippe Wagener (RAM Active Investments) 10 Frederic Trierweiler (State Street) and Anne-Francoise Goffinet (Kredietrust) 11 Stefano Pileri, Elisabetta Fatone (BNP Paribas Securities Services) and Marc Seimetz (Dechert LLP) 12 Michael Chow (Fullgoal Asset Management) and Gian Luigi Costanzo (China Universal Asset Management) 12

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PICTURE REPORT

1

5

6

1 Junaed Kabir, Rana Hein-Hartmann (Funds Partnership) and Angus W. Stening (State Street Global Markets) 2 Aisling Whelan (Bonn & Schmitt Avocats) and David Barclay (GSK Luxembourg) 3 Michael Chow (Fullgoal Asset Management) 4 Bertrand Jaboulay (PwC) and Mickael Tabart (KPMG) 5 Anaïs Sohler and Jérôme Mausen (Elvinger, Hoss & Prussen) 6 José Carlos H. Doherty (Brazilian Financial and Capital Markets Association) 7 Bettina Graeber (Pictet & Cie) and Ladislas De Crouy-Chanel (Deloitte) 8 Mathias A. Lentz (Brasserie nationale Bofferding) 9 Paul Lacher and Janice Y. Barnwell 10 Asif Beg (BNP Paribas Securities Services) and Sébastien Gury 11 Kristina Danielson (UBS Global Asset Management), Bettina Rudin (Suter Howald Attorneys at Law) and Joana Maria Meier 12 Rafal Kwasny (HSBC) and Mateusz Derejski (Metrosoft) 9

2

7

10

3

11 8

4

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— Supplement 09 - 10 / 2016 — Investment funds

WHAT’S IN THE REGULATORY PIPELINE?

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ABOUT

COVER Illustrations Jan Hanrion

September / October 2016 Supplement – Investment funds in collaboration with ALFI

Write to BP 728 L-2017 Luxembourg Offices 10, rue des Gaulois, Luxembourg-Bonnevoie ISSN 2354-4619 Web www.maisonmoderne.com Founder and CEO Mike Koedinger Administrative and financial director Etienne Velasti Innovation, quality and operations director Rudy Lafontaine

PUBLISHER Phone (+352) 20 70 70-100 Fax (+352) 29 66 19 E-mail publishing@maisonmoderne.com Editorial staff press@paperjam.lu Web www.paperjam.lu Publisher Mike Koedinger Editor in chief Jean-Michel Gaudron Coordination Marie-Astrid Heyde Contributors Olivier Bilal, Bernard Delbecque, Stephen Evans, Jim Fitzpatrick, Gudrun Goebel, Pascale Leroy, Jacqueline Lommen, JoséBenjamin Longrée, Sergio Venti, Nasir Zubairi Photography Christian Aschman Proofreading Pauline Berg, Muriel Dietsch, Sarah Lambolez, Inès Sérizier

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Jan Hanrion is an in-house creative talent at Maison Moderne.

Hailing from Metz, he studied fine art in France. He specialises in image in the widest sense of the word: illustrations, photography and reworking images.

A-B ABBL 16 ALFI 8, 16, 22, 40, 63 ANBIMA 8 Arendt & Medernach 16 Aubry Florence 62 Aztec 13 Banque Havilland 21 Banque Pictet 11 Barclay David 64 Bastin Alain 60 BDO 29 Beg Asif 64 Better Finance 26 BGL BNP Paribas 33 Bil Manage Invest 60 Bilal Olivier 52 BNP Paribas Securities Services 60, 62, 64 Bonn & Schmitt Avocats 64 Brasserie nationale Bofferding 64 Brazilian Financial and Capital Markets Association 64

C-D Caceis 67 Caceis Bank Luxembourg 16 Capital Markets Union 8, 26, 36, 40, 50 Carnegie Asset Management 62 Cattaneo Andrea 62 China Interbank Bond Market 14 China Securities Regulatory Commission 14 China Universal Asset Management 62 Chow Michael 62, 64 Choy Peng Wah 62 Clifford Chance 65 Costanzo Gian Luigi 62 Crédit Agricole Indosuez Luxembourg 16 CSSF 16, 22 Danielson Kristina 64 De Crouy-Chanel Ladislas 64 de Laurentis Yvan 60 Dechert LLP 62 Delbecque Bernard 36 Deloitte Luxembourg 34, 58, 62, 64 Derejski Mateusz 64 Doherty José Carlos H. 64

E-F Eastspring Investments 60 Edge Chris 62 EFA 16, 61 EFAMA 16, 36 EIOPA 36 Elvinger, Hoss & Prussen 62, 64 Enspirit 62 European Commission 16, 26, 36, 44, 58 European Confederation of Directors’ Associations 16 European Securities and Markets Authority 50 Evans Stephen 56, 57, 58 EY 60, 62 F2C – Financial Communication Consult 62 Farad 49 Fatone Elisabetta 62 Ferguson Michael 60, 62

Financial Services and Treasury Bureau 14 Fischer Rafik 16 Fitzpatrick Jim 12 French Court of Auditors 26 Frieden Luc 16 Fullgoal Asset Management 62, 64 Fundglobam 43 FundPartner Solutions 60 FundRock Management Company 40 Funds Partnership 64 Fundsquare 62

G-H-I Gelhay Jean-Michel 16 Goebel Gudrun 40 Goffinet Anne-Françoise 62 Graeber Bettina 64 Gramegna Pierre 8 GSK Luxembourg 64 Gury Sébastien 64 Harvest Global Investments Limited 62 Hasse Nelson 62 Havik Jorn 60 Hein-Hartmann Rana 64 Hill Jonathan 8, 26 HK IFA 14 HSBC 60, 62, 64 Hugé François-Kim 62 Humbert Anne 62 IFBL 16 IML 16 IQ Solutions 4, 5

J-K-L Jaboulay Bertrand 64 Jefferson Oliveira 62 Juncker Gast 62 Kabir Junaed 64 Kay John 26 Kayl Didier 62 KBL European Private Bankers 16 Kneip 43, 62 KPMG Luxembourg 35 KPMG Luxembourg 50, 64 Kredietrust 62 Kremer Claude 16 Kwasny Rafal 60, 64 Lacher Paul 64 Lambeau Bernard 62 Lasch Georg 60 Legrand Guy 16 Lentz Mathias A. 64 Leroy Pascale 50 Linklaters 6 Lombard Odier Investment Managers 16 Lommen Jacqueline 30, 31, 32 Longrée José-Benjamin 44 Luther 51 Luxembourg for Finance 8

M-N Madoff Bernard Mandatory Provident Fund Schemes Authority Marlière & Gerstlauer Executive Search

In this index are recorded the companies, leading figures and advertisements present in this magazine.

— Supplement 09-10 / 2016 — Investment funds

16 14 62

Marlière Jean-François MAS Mausen Jérôme MDO Services ME Business Solutions Meier Joana Maria Metrosoft Micucci Gino Mottion Pierre Nerea NICSA NN Investment Partners Numen Europe

62 2 64 60 45 64 64 62 60 59 12, 16 55 62

O -P OECD Ommeganck Michel Oury Renaud Pictet & Cie Pierrard Jean-François Pileri Stefano Portenseigne Olivier Prache Guillaume PwC Luxembourg

50 60 62 64 60 62 62 26 16, 44, 62, 64

Q-R-S RAM Active Investments Rasmussen Jonas Rudin Bettina Ruitenberg Henk Saluzzi Marc Sanofi Schneider Étienne Schwab Charles Seale Thomas Securities and Exchange Commission Securities and Futures Commission Seimetz Marc Shanghai Connect Skagen Funds Société Générale Sohler Anaïs State Street State Street Global Markets Stock Connect Suter Howald Attorneys at Law

62 62 64 60 16 26 8 52 16 12 14 62 14 60 68 64 62 64 14 64

T-U Tabart Mickael Trierweiler Frederic UBS UBS Global Asset Management United International Management

64 62 52 64 39

V-W-X-Y-Z Vanguard Group Vansteenkiste Pierre Venti Sergio Vistra Vogel Martin Voss Denise W. Stening Angus Wagener Philippe Whelan Aisling Y. Barnwell Janice Zubairi Nasir Zurstrassen Patrick

26, 52 16 34 15 60 8, 16 64 62 64 64 46, 47, 48 16

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