Luxembourg entices SA’s asset managers amid uncertainty over Brexit
Appetite among Europeans for investing in Africa presents an opportunity for SA asset managers to raise much-needed capital for infrastructure
Luxembourg, one of the official EU capitals, is positioning itself as a gateway for South African asset managers to tap into European capital as uncertainty over Brexit continues. It is also hoping to cash in on South African investors’ increased appetite for international exposure.
The Association of the Luxembourg Fund Industry (Alfi) hosted a two-day roadshow in SA, which will end in Cape Town on Wednesday. The association’s deputy director-general, Anouk Agnes, said appetite for investing in Africa among European investors presented an opportunity for South African asset managers to raise the much-needed capital for infrastructure. She said Luxembourg, being a specialist in investment funds, would enable South African managers to reach investors in 70 countries where Luxembourg domiciled funds are sold.
“Through these funds, South African managers can reach European investors and other investors abroad, including Asia and Latin America. They can pull investments from investors around the world to, for instance, invest in South African infrastructure. Investors are interested in the African market but they don’t really know how to do it. South African asset managers can sell their expertise of the market, they know the market,” Agnes said.
Alfi is also positioning Luxembourg as a destination for South African institutional and pension investors looking for offshore exposure. Through its Undertakings for Collective Investment in Transferable Securities, Luxembourg facilitates cross-boarder fund distribution. Already, 56% of foreign collective investment schemes sold in SA are Luxembourg funds.
One of the local asset managers that has a number of funds domiciled in Luxembourg is Investec. The company also has a physical office in Luxembourg. However, Investec Asset Management’s adviser services director, Jaco van Tonder, said South African managers must know that Luxembourg is a different operating environment from what they are used to: it is characterised by many regulations, language barriers, expensive service providers, and barriers to entry that are generally higher than in SA.
“Go into it with your eyes open. There are some operational issues,” he said during one of the panel discussions.
With more than €4,000bn in net assets under management, Luxembourg is the second-largest investment fund centre in the world after the US. But Luxembourg is also a highly regulated market. In 2015, the OECD identified overregulation as a possible problem for that market's financial services, while a 2017 report by PwC showed that 95% of CEOs in that market were concerned about over-regulation.
Luxembourg is hoping to become a hub for investment funds post-Brexit. Nicolas Mackel, CEO of Luxembourg for Finance, said more than 50 financial services companies, mostly asset managers, had announced that they were looking to relocate their EU operations to Luxembourg after Brexit.
“London was by far the leading hub of financial services in Europe and that will continue to be a case for a while. But there are activities that are expected to relocate to other financial hubs in the continent,” he said.
Mackel said some banks that set up contingency operations in Luxembourg after the Brexit vote had already relocated more people to those contingency operations than they had initially anticipated. Luxembourg, given its expertise in investment funds, expected to house more asset management operations, he said.