Office opening bolsters ties
Hong Kong and Luxembourg have enjoyed long and successful co-operation in the field of funds and financial services, so it is perhaps something of a surprise that the Association of the Luxembourg Fund Industry (ALFI) has only recently opened its own representative office in town.
The move does not signal a change of focus or strategy. It is seen more simply as a sensible step to strengthen existing ties with Hong Kong's investment management community and to remain fully informed of emerging trends and possible undercurrents in an always evolving sector.
'Both centres are very internationally oriented,' says Anouk Agnes, director for communications and business development at ALFI. 'And the respective regulatory bodies know each other and exchange information on a regular basis, [but you must keep looking ahead].'
According to industry statistics up to the end of April, Luxembourg has a 26.5 per cent share of Europe's investment fund market. Overall net sales for the fund industry in the first quarter of this year reached Euro36.4 billion (HK356.6 billion), which was widely interpreted as an encouraging rebound from the comparative declines caused by last year's market depreciation.
Annual performance aside, Luxembourg's success is attributable in part to UCITS, or undertakings for collective investment in transferable securities. In effect, these are collective investment schemes which comply with rules laid down in European directives.
'They benefit from a 'passport' which enables them to be sold cross-border into any EU member state,' Agnes says. 'UCITS are also retail products with a very high level of investor protection.'
Although the relevant directive dates back to 1985, Luxembourg was the first country to transpose it into national law. This gave an important head start when it came to capitalising on the benefits of an integrated European market for investment funds, Agnes explains.
As a result, Luxembourg is now the largest domicile for UCITS funds and has become an international benchmark and point of reference point for cross-border distribution of investment products.
'Of all cross-border funds registered for distribution in Hong Kong, more than 70 per cent are Luxembourg domiciled,' Agnes says.
That is one reason the appropriate authorities are continuously working with Hong Kong's SEC to anticipate potential areas of concern and ensure that UCITS meet the highest standards of investor protection.
With the promulgation of a new alternative investment fund managers directive (AIFMD), there are strong hopes of repeated success.
Luxembourg's aim is to be the first European country to incorporate this directive into national law and take a similar lead in the private equity, hedge fund and real estate fund business.
'It comes as a welcome opportunity to create a brand in the alternative investment market as well,' Agnes says. 'The EU will have the first regulated environment for alternative investment funds worldwide. The directive can enhance Luxembourg's position as a leading domicile for fund and management companies in the alternative sector and to leverage its vast experience in the cross-border space.'