‘Expensive’ Luxembourg to benefit from Brexit

Fund managers are willing to put up with the perceived high cost of domiciling in Luxembourg because of the country’s service provision, regulatory regime and attractive tax system, according to industry sources in Europe.

Just under half of delegates polled at Invest Europe’s CFO Forum in Berlin on Tuesday said they were considering domiciling their next fund in Luxembourg, despite 57 percent saying they thought it was the most expensive jurisdiction in which to run a fund.
“There is a perception Luxembourg is a expensive place to set up and run a fund, but really, it’s the cost of the Alternative Investment Fund Managers’ Directive, it’s not Luxembourg-specific,” a senior vice president from a Swiss-based private equity and infrastructure manager said during a panel discussion.

Fund managers are used to dealing with offshore and non-regulated funds which are, in comparison, much cheaper to run, the panellist added.

On the appeal of Luxembourg as a fund domicile, one fund manager who has been running a Luxembourg fund for a few years said the country’s regulatory stability, favourable tax regime, and forward-looking attitude to the Alternative Investment Fund Managers’ Directive from the outset has helped it to establish itself as a domicile of choice in Europe.

He added the availability of service providers on the ground – administrators, accountants and lawyers among them – added to the country’s appeal.

“Luxembourg wasn’t originally a part of [our] firm’s long-term plan, but since launching the fund we have placed a team there because it became evident it was a good place to be; its fund industry is mature and there are good resources there including service providers,” the fund manager said.

A second fund manager said a recent update to the limited partnership law – which reduced both registration time and the administrative burden on fund managers – had been “helpful” adding the regulator had also been making an effort to improve the efficiency with which it processed applications.

“There was previously an issue with timing, but that has improved a lot now and the time it takes to get a license has fallen. I know they’re also recruiting to reflect the influx of applications for licenses it has received lately,” the fund manager said.
The panel agreed that these attributes meant Luxembourg, out of all European jurisdictions, would benefit the most from Brexit.

“Other jurisdictions have their benefits, but Luxembourg has the fewest drawbacks. It’s going to be the real winner from Brexit,” the second fund manager said.