How to future-proof Luxembourg’s Asset Management industry

Once upon a time, there was a cicada that spent the summer singing and dancing, while the ant worked hard to store up food for winter. When winter finally arrived, the cicada found itself hungry and begged the ant for food. However, the ant reproached its idleness and asked, “Why don’t you dance the winter away now?”

You probably know this fable from your childhood —instead of a cicada, you may have heard of a grasshopper, and instead of an ant, ants. Regardless of the version, this fable, as any other, contains a teaching: the virtues of hard work and the perils of carelessness.

Don’t have time to read the whole blog entry? Then watch our “Blog in 1 minute” video for a quick summary of its main points:

Some of its versions state a moral at the end along the lines of “An idle soul shall suffer hunger”, “Work today to eat tomorrow”, and “July is followed by December”. At this point, you might be wondering why we are opening our blog entry with such a strong statement. Well, stay with us because we will get there in a second.

Cicada or ant: what’s it gonna be?

The Luxembourgish financial centre, which represents the world’s second largest fund domicile, no longer needs an introduction. The Grand Duchy holds, within its small borders, the entire spectrum of the global investment ecosystem —with all major players having long been active in the country.
The reasons for this are plentiful, among them the fact that the Grand Duchy:

  • Provides a stable political and regulatory environment;
  • Has the right environment to capture trends and innovative ideas;
  • Holds a recognised expertise on international distribution;
  • Is a one-stop shop with a strong solution set, and a pool of international talents.

Thus, it’s not surprising that the global Asset and Wealth Management (AWM) industry has formed a strong, enduring connection with the country. What’s more, it has established vast networks with the local financial ecosystem, and to this day it promotes the nation and its products to its investors.

This reputable positioning goes clearly beyond the country’s (and Europe’s) borders, with the users of the Grand Duchy’s solution set —the beneficiaries, asset managers and investors— often being located outside the country.

But, despite the advantages it offers and the positive outlook, Luxembourg needs to constantly reinvent itself alongside the winds of change to stay relevant. Coming back to our fable, the country can’t afford to be complacent as competition from other financial centres is fierce.

And the consequences for Luxembourg not strategising and adapting with agility to the times and the competition may translate into losing its competitive edge. This begs the question, ‘Does Luxembourg want to be the cicada or the ant?” Our guess is the latter.

In this blog, we examine the main outcomes of our recent report The Luxembourg User Experience in Asset Management. We will particularly focus on three long-term objectives that need to be acted upon as these will be fundamental to ensure the long-term prosperity of Luxembourg’s financial centre and, subsequently, the long-term success of its economy.

The Luxembourg “User Experience” in Asset Management, the survey

In September 2022 we released a paper with the results of our survey, whose goal was to assess the ‘user experience’ of those who rely on —or contribute towards— Luxembourg’s AWM solution set.

Over a period of four months, we conducted more than 30 interviews with the global senior management of the top 50 asset managers operating in Luxembourg, headquartered in Belgium, Germany, Switzerland, UK and the US.

We can say that there’s a large consensus between the participants in terms of key strengths and shortcomings. Thus, the conclusions can be considered as a consolidated voice of a highly representative group of major asset managers active in Luxembourg.

And so, to future-proof Luxembourg’s unique offer, the major players —the government, asset managers, the Luxembourg regulator (the Commission de Surveillance du Secteur Financier), the Luxembourg for Finance, among others— will want to put in practice a set of tactical and strategic actions that we detail below.
The tactical actions will require key stakeholders to address and resolve pressing challenges, whereas the strategic actions will require a more pristine rethink of the Grand Duchy’s value proposition.

While both are fundamental moving forward, it’s the strategic actions in particular that will prove instrumental in maintaining the core activity of the Luxembourgish financial centre.

What the Luxembourg “users” said (on issues to look out for)

Tactical actions

Do good things and speak about it: it goes without saying that Luxembourg bears all the hallmarks of a truly innovative AWM centre. However, the interviewees believe that more could be done to market the country’s unique characteristics internationally, namely its combination of technical and linguistic skills that represent the perfect toolbox for a centre of back-office excellence.

Attract talent: organisations should focus on including tactical upgrades addressing the evolving workplace and the changing expectations of young talent —today, they require flexibility in terms of their place and time of work, they expect to work for a purpose-driven organisation and they seek a totally different work-life balance.

On a positive note, Luxembourg’s ability to attract and retain talent has improved over the years, but nowadays players focus on hiring and promotion activities individually, instead of coming together.

Strengthen the communication with financial players and adopt agile regulation: Luxembourg’s regulator has long been widely recognised and commended for its expertise and pragmatism. That being said, three areas could benefit from further enhancement: responsiveness, clarity and proximity.

Strategic actions

Dealing with the cost of living: if we talk about talent attraction, then the next step is to mention the cost of living —they are inherently intertwined. Luxembourg has by far the highest minimum wage in the EU and salaries continue to increase, however the rising housing and fuel prices are negatively impacting consumers’ purchasing power, undermining the country’s attractiveness.

Review the cost of doing business: the interviewees don’t expect Luxembourg to become a low-tax country as this doesn’t fit into today’s world. Instead, they expect Luxembourg to align to comparable onshore centres and to ensure long-term stability in its tax policy.

What Luxembourg should do (to surmount the issues)

The report’s conclusions can be grouped into “quick fixes” and more long-term objectives. In the very short-term, there are some “quick win” actions that would help financial players in their daily operations, while simultaneously heightening the global perception of Luxembourg as a safe, attractive, compliant and innovative financial centre.

The “quick fixes”
  • Simplifying certain procedures for Management companies to align with the practices of neighbouring national authorities (streamlining the sub-fund renaming process, for example);
  • Introducing a track for standardised products as far as is possible under currently regulatory conditions;
  • Reforming the reduced taxe d’abonnement to fully consider Sustainable Finance Disclosure Regulation (SFDR) Article 8 and 9;
  • Taking an active stance towards EU harmonisation regarding the use of qualified signatures;
  • Revisiting existing working groups bringing together governmental representatives with business and the regulator to increase focus on the further development of the Asset Management centre or, if more appropriate, establish a small group entirely dedicated to business development.
The long-term objectives

The Luxembourgish financial centre has a series of highly appreciated solutions on offer, and we should definitely speak about those. Also, Luxembourg isn’t only attracting major asset managers, but also key talents.

This attractivity should be increased jointly to ensure that we can continue to grow along with the significant opportunities.
Finally, strategic discussions should further cover well-known challenges, such as cost of living and the global evolution of the tax framework.

Communicate strengths

  • Intensify marketing activities towards emerging markets;
  • Sharpen the message around today’s key strengths —namely oversight, risk management and distribution functions;
  • Market the financial centre and its solutions directly to investors;
  • Lobby at home —illustrate the significant contribution of the sector to Luxembourg.

Tactical upgrade

  • Assess opportunities to enhance education solutions in Luxembourg and “put real skin in the game” (funding, resources);
  • Develop a perspective and messaging around the workplace of the future;
  • Promote Luxembourg as a great place to work and launch a sustainable career;
  • Engage with the regulator and propose up-to-date, ongoing and realistic ways to bolster collaboration and cohesion;
  • Launch coordinated promotional activities with universities and similar establishments in order to attract young talents.

Sustainable strategic development

  • Contribute actively to a wider political discussion, including subjects such as cost of living, commute and the workforce of the future;
  • Contribute to a discussion surrounding the development of a future proof, fair, sustainable and attractive tax framework;
  • Implement a strategic agenda to position Luxembourg as a competence centre for Sustainability in Asset Management.
Last thoughts

We can conclude from the interviews that the main asset managers active in Luxembourg are well conscious of the advantages the Grand Duchy has to offer, but also the pain points that could hinder the financial centre’s continuous growth and development, and, in a worst case scenario, lose its prominent position as the world’s second largest fund domicile.

The good news is that by identifying both, the major players can work hard(er), just like the ant in the fable, to be ready in time for winter.

You can find out more about ‘The Luxembourg “User Experience” in Asset Management’ paper and download it here.

What we think
Bjorn Ebert
Björn Ebert, Luxembourg AWM Strategy Leader, Partner at PwC Luxembourg

Sustainability is disrupting how organisations do business today and will be the major factor in deciding the winners and losers of tomorrow’s global economy. Companies that launch a successful sustainability transformation journey focusing on long-term value creation across ESG are well poised to build a competitive advantage, expand shareholder value and build a better future.

Oliver Weber
Oliver Weber, Luxembourg AWM Leader, Partner at PwC Luxembourg

This paper is only the starting point of a larger journey. Going forward, we propose to develop actual work streams. Indeed, the key strength of “Luxembourg Inc.” has always been the common aspiration of the players to continuously contribute to the financial centre’s sustainable development.

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