Heavier regulation, the downturn, and Luxembourg's ambitions in the world of regulated alternative assets are changing its job market. Nick Fitzpatrick reports.
Job losses in Luxembourg’s funds industry tailed off last year but the country’s unemployment rate is forecast to go up, making for an uncertain time.
The financial crisis has been blamed for some redundancies prior to 2011 – but so, too, has the drift of certain jobs to lower cost centres, such as Poland and other countries eastwards of it. This is a continuing trend.
The Association of the Luxembourg Fund Industry (Alfi) said jobs had been maintained in the funds sector in 2011, which makes up a large portion of the 43,000 total jobs in Luxembourg financial services.
But Statec, the official statistics office, forecasts the national unemployment rate to increase from 6% in 2011 to 6.5% this year. The unemployment rate was 6% in both 2010 and 2011.
BNY Mellon in February became the latest fund service provider to make cuts. A spokesman confirmed to Funds Europe that a “small number” of Luxembourg roles were made redundant. The move followed job losses at other large banks since 2008, including Clearstream, HSBC, JP Morgan and State Street.
When Luxembourg embarked on its project to build a fund-servicing centre two decades ago, the sector soon looked like it offered jobs for life for Luxembourgers and the cross-border workers from neighbouring France, Germany and Belgium who commute daily into the country and today number 150,000. The jobs for life idea was boosted by the rapid expansion of the Ucits fund industry after 1988.
The cutbacks are hardly decimating the industry, though. Clearstream International laid off two of its 116 staff in 2010, Clearstream Services laid off 19 of its 683 staff in the same year. JP Morgan Asset Management laid off 16 of its 250 staff in 2009 and JP Morgan, the bank arm, laid off 33 of its 521 workers, according to figures from Aleba, a trade union in the bank and insurance sector.
And keep in mind the longer-term trend runs in the opposite direction to decimation. Ten years ago, State Street had under 400 employees in Luxembourg; now it has nearly 900.
But financial crisis or not, the wave of jobs sent to other, usually cheaper, centres is a trend taking place by itself.
Marty Dobbins, managing director at State Street in Luxembourg, says: “Luxembourg is seeing more and more activities – such as trade processing and cash settlement – which are considered basic functionality, being automated and consolidated in centres of excellence around the globe.”
State Street has operational hubs in Poland, India and Kansas City, in the United States.
Philippe Genicot, a headhunter at ProfilerConsulting who specialises in the funds sector, says: “The number of operational jobs in Luxembourg’s asset servicing industry continues to fall as some of those roles are being replaced by operational centres in Eastern Europe and Asia. A lot of big players over the last two years got rid of some people or are in the process of doing so.”
Middle managers thrive
Genicot says that job creation in the middle-management tier is thriving at the expense of jobs in the operational level, while the senior-management tier is more static.
This perspective appears to be borne out by Alfi, which in its 2010-2011 annual report noted that staff were increasingly required by employers to demonstrate ever higher levels of competence and employability, as “low value-added tasks are phased out in Luxembourg and more sophisticated co-ordination, oversight and management roles evolve”.
Genicot says the growth in the middle-management tier is to oversee the activities of foreign operational centres and give a Luxembourg “signature” to the country’s highly valued investment products. “The Luxembourg signature is important in order to get the European passport. Funds have to show that operations are at least validated here.”
If more and more operational roles are moved to other locations, then scrambling up the management ladder is important to avoid unemployment. Many redundancies, says Genicot, have been among people that have carried out operational tasks for ten years or more and who did not move into management or other roles that are considered these days to have more value-added facets, such as accounting for derivatives.
But even a management role is no guarantee. Genicot says a former head of operations on his books had project managed the migration of his and his 30-strong team’s functions to another country, with nothing but redundancy waiting for him at the end.
Operational jobs have become evermore complex since Luxembourg began building its funds industry – just like the funds they support. Gone are the days when one person could cover multiple tasks. Funds were simpler then, and so were investors’ needs. Equally, regulatory pressure was less present – and less expensive to comply with.
Then the funds flowed in, complexity increased and duties became more separated.
Even the simple Ucits fund has become more complex, with the introduction of new asset classes and strategies allowed in updated regulations that created “alternative” Ucits.
But to some extent Luxembourg welcomes complexity. Not just a vigorous supporter of alternative Ucits, Luxembourg is now more interested than ever in building up its alternative funds business, and it hopes to distinguish itself as a leader in services to funds covered by Europe’s incoming Alternative Investment Fund Managers (Aifm) directive, creating a Luxembourg Aifm gold-plated stamp for alternative investments.
Luxembourg serviced 4% of hedge funds in major fund servicing centres, according to 2011 figures by consulting firm, Oliver Wyman. Ireland serviced 8% while the Cayman Islands serviced 45%.
But the sense in Luxembourg appears to be that private equity and real estate offer particularly good opportunities.
Luxembourg serviced about 9% of private equity funds in 2011, more than Ireland, which serviced 3%. Guernsey and Jersey serviced 7% and 6% respectively. In real estate, Luxemburg serviced 16%, more than all other major centres such as Guernsey (10%), Jersey (12%), but behind Delaware (45%).
State Street has built a structured depository product group around the two asset classes, and in November the firm announced that Keith Burman, formerly of Brown Brothers Harriman, was brought on-board as a managing director for alternatives.
BNY Mellon Asset Servicing’s recent appointment of Brian McMahon as its managing director, business developmpent executive in Luxembourg is seen as a drive for the same business. He held roles previously at Citi and State Street.
The development of these areas is leading to more competition for specialists and this is likely to be a valuable cause of job creation going forward.
With uncertainty still prevailing in the financial sector, working in Luxembourg’s funds industry appears to offer security only for those able to climb up into middle management, or to bring the most in-demand skills to Luxembourg’s future alternative funds.
©2012 funds europe