February 2015 - Time for a market infrastructure

Time for a market infrastructure: Towards an improved fund distribution environment

While Luxembourg is the world’s second largest fund centre it is worth remembering that only around 10% of the European population have chosen to invest in investment funds.

The reasons for this are manifold but there is much positive change happening in Europe in this respect and on 25 February Fundsquare hosted a webinar on its premises on the challenges of international fund distribution.

These are some of the highlights of the discussion.

Make space for changing investor behaviour

Fund promoters and distributors must accept that private and institutional investors’ behaviour is changing and, ultimately, it is this which will force change.

Banks, which have the lion’s share of European fund distribution, and fund platforms should begin to rethink their distribution models, if they are not already doing so.

This will probably take place slowly but there is the possibility of disruptive technologies or actors accelerating the rate of change.

Create a global infrastructure for European funds

Europe needs to go to the next level and make funds more attractive both to European and international investors.

One of the fundamental building blocks to make this happen is an infrastructure specifically for investment funds, which will reduce the existing redundancies and overly complex processes and relationships.

There are such models, already in place outside of Europe, in particular in the US and Canada. Ideally a European model would be based on centralised market utilities grouping all actors and focusing on different areas.

There could be utilities for KYC/AML, execution and settlement, for example.

The need for a market utility for “pre-investment”, onboarding, KYC and AML is becoming pressing, particularly as these are complex, fragmented and resource-consuming in Europe.

Investment funds were not originally in the scope of the European-wide Target2-Securities initiative but it will become the de facto standard for settlement. But it should be remembered that this is a European standard and will not necessarily be attractive for institutional investors outside of Europe.

There remain a few important questions related to the creation a European fund infrastructure. Notable amongst these is the issue of ultimate responsibility within such an infrastructure, as well as various production chain and money flow questions. In addition, it needs to be pan-European and not only focused on Luxembourg funds.

Luxembourg continues to be the leading European fund centre

The European fund industry competes on a global stage and will need to be competitive and meet market and investor needs.

As a fund centre, Luxembourg works proactively to find solutions to future challenges. It has unique expertise and experience in international fund distribution and is the ideal location to distribute across borders.

Luxembourg is not a distribution location but is definitely a strategy for asset managers to domicile their flagship products for international distribution.

_{Published on: 2 March 2015}

Fundsquare News 17 - February 2015