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Supplements » Luxembourg Report 2021

Roundtable: Back in the office

Funds Europe – Is the UK likely to become a competitor to Luxembourg now that the former is outside of the EU? How is Brexit impacting Luxembourg’s relationship with the UK? Also, how is the Luxembourg funds industry seeking to leverage the new landscape of an EU without the UK?

Mackel – There are probably two sides to this discussion. The starting point is that the whole point about Brexit was the UK wanted to go down a separate route, to take back control in order to do exactly what the UK wants to do, and thus to become a competitor to the rest of the EU. In that sense, it is nearly inescapable that the UK wants to position itself as a competitor. The fact remains that the UK has left the EU, but within the EU single market – including the market in Ucits funds – it will probably be a little bit more difficult in future to be a competitor.

The second angle is that Luxembourg has always been a partner to London, obviously for many years being the back and middle office to a lot of London-based operations. Going forward, Luxembourg can serve as a bridge into the EU single market, building on this previous partnership.

It is difficult at this stage to say whether we will only be competitors. With all respect, the UK government consultation gives the sense that competing is, in fact, the order of the day. But exactly where, what or how is something they do not know yet. We are following this very closely to see how we can position ourselves.

The interesting thing is that nearly five years after the referendum, it isn’t quite clear yet on which points exactly the UK wishes to compete. In the consultation they have indicated or hinted at several directions.

But Luxemburg and the UK have also been competitors within the single market. Both of us fared very well there. Although we’re not afraid of competition, there are elements where we can work together.

Webster – Undoubtedly there was such uncertainty during the whole transition process as Brexit discussions evolved. I think most companies, including ours, felt they just had to go on and future-proof their model against an unknown Brexit outcome. In our case, for example, we made a strategic choice to centre our MiFID business in Ireland and to centre our Ucits management company activity in Luxembourg.

Longer-term, I would agree it’s unclear to me what the strategy would be for the UK in terms of how it’s aiming to compete in a global market, but I think that would take some time to evolve. I think the Ucits brand is formidable globally, and so for a new product that only comes from one country, it would be a big challenge to compete outside of Europe, and I think within Europe it’s always going to be a bit more difficult as a product from a third country.

Perhaps there is less of a barrier on some of the private-markets products where the type of customer and the products are more specialised. The distribution is more limited and it perhaps still relies more on what can be done in terms of private placement, reverse solicitation country by country, so I think there’s probably a difference between the wholesale distribution of Ucits products and some of the specialised private market assets.

Maurier – There have been adjustments over the past two to three years and obviously since the referendum, with firms crossing the Channel and setting up substance in Luxembourg, there will be further adjustments. However, I do not see large competition emerging between the UK and the Luxembourg fund industries. I think we know very well what it took for us as an industry over the last 30 years to build the infrastructure to allow Luxembourg to be the largest cross-border fund market in the world, and that is not something that one can replicate overnight. The Memorandum of Understanding signed in February 2019 and the temporary regime of the FCA will ensure continued good cooperation and exchange of information.

I do not see Brexit as a cause to shift cross-border flows out of Luxembourg, in all honesty. For private assets, indeed, that is a key element. Again, it will be very interesting to see how flows are flying between jurisdictions.

Bechet – The consultation of HM Treasury and the review of the UK funds regime is extremely well written. People know what they think and they have the expertise from a legal and tax point of view, so I would not underestimate any effort from the UK to enter some of the funds space, especially in private markets.

But we have always been partners. The largest portfolio management centre across Europe is still the UK. The Investment Association (IA) cites a figure of £9.9 trillion in assets under management for segregated mandates and funds from the UK, and we have some confirmation that the delegation regime in the UK, as well as in Europe, is reasonably expected to stay as it is today. I think there was a statement made by the Commission, [director of financial markets] Ugo Bassi, recently in that respect.

So, the partnership between the UK and Luxembourg will stay, it’s still the second-largest group of initiators with 17% of assets, and Luxembourg is marketing funds into the UK. Luxembourg has the largest number of foreign funds marketed in the UK, close to 50%.

What’s interesting to see is that membership of the IA in the UK shows a quarter of these asset managers have no UK funds, they only have Irish and Luxembourg funds. That shows how they are more cross-border than anything else. There is not this tension that people would like to see.

Kaveh – The UK has been an ally of Luxembourg for a very long time. It’s not a case of the UK versus Luxembourg.

Also, negotiations have been drawn out, giving UK asset managers time to organise, to add substance in Luxembourg. There has been a higher level of activity by alternative investment fund managers (AIFMs) in Luxembourg, accelerated by Brexit.