Luxembourg maintains its position as the leading European hub for private capital.
## Shifting Landscape of European Fund Domiciles: A Focus on Private Capital, ETFs, and LTAFs
In the ever-evolving European investment landscape, key countries like Luxembourg, Ireland, and the United Kingdom are making significant strides in the private capital, ETF, and Long-Term Asset Fund (LTAF) sectors.
At a recent CIO debate held at the FundForum conference in Monaco, Martin Horne, co-head global investments at Barings, acknowledged the challenges in predicting the future of investments, with experts often caught off guard. This sentiment was echoed by many at the conference, as they navigated the complexities of the current market.
### Luxembourg: A Leader in Private Capital and Cross-Border Funds
Luxembourg continues to be a leading domicile for cross-border funds, particularly for private market funds. The country hosts over half of Europe's private market assets, leveraging vehicles like Reserved Alternative Investment Funds (RAIFs) and special limited partnerships (SCSps). In addition, Luxembourg is gaining ground in the ETF sector, with around 21% of ETFs now based there.
### Ireland: The Global Leader in ETFs
Ireland is the leading global domicile for ETFs, with a 39% market share. Its cross-border ETF registrations have grown significantly, making it a preferred choice for tax-efficient products. The country's structural advantages, such as a favorable regulatory environment and tax efficiency, continue to attract global players.
### United Kingdom: Adapting to a Post-Brexit World
While the UK is not as prominent in the ETF and private market fund sectors as Luxembourg or Ireland, it maintains a robust regulatory framework. The UK's focus on alternative investment funds, such as LTAFs, is growing, offering a flexible environment for long-term asset management. Since Brexit, the UK has faced challenges in maintaining its position as a key financial hub. However, it continues to attract fund managers, particularly those looking to domicile outside the EU for certain strategies.
### Trends and Developments
There is a clear shift towards private market funds, with investors seeking diversification and higher returns. This trend benefits Luxembourg, which is well-equipped to handle these funds. Regulatory changes, such as the extension of tax exemptions and easing of management requirements, are influencing where funds are domiciled. For example, Poland is expanding its tax exemptions to include third-country funds, which could impact European fund domiciling decisions.
Clive Bellows, president Europe, Middle East, Africa, Northern Trust, stated that multiple European domiciles are important for various types of products. Few people at the conference were discussing Environmental, Social, and Governance (ESG) factors, but Sonja Laud, CIO of L&G Asset Management, emphasized the importance of addressing climate change globally and focusing on ESG factors.
The effectiveness of the traditional 60/40 model, which allocates 60% to equities and 40% to bonds, is also being questioned due to diversification issues, as inflation shocks have been causing bonds and equities to perform poorly. Peter Branner, CIO of Aberdeen Investments, suggested allocating away from traditional US equity investors towards private assets and deals in Europe as a potential solution.
In summary, Luxembourg excels in private market funds, Ireland leads in ETFs, and the UK retains its appeal for certain niche strategies. Regulatory adjustments and market trends will continue to shape the fund domicile landscape in Europe, with a growing focus on private market funds, ESG, and long-term asset management products like LTAFs.
- In the context of the shifting landscape of European fund domiciles, asset management strategies are evolving, with Luxembourg showcasing expertise in private capital, cross-border funds, and special limited partnerships, while Ireland maintains a leading position in the ETF sector, leveraging its tax-efficient environment and regulatory advantages.
- The trend towards private market funds, the growing importance of Environmental, Social, and Governance (ESG) factors, and the expansion of long-term asset management products like LTAFs, indicate that business strategies in the European fund industry will continue to be shaped by diverse investment opportunities, regulatory changes, and a heightened focus on sustainability.
