Luxembourg eyes return to a record AUM

The Association of the Luxembourg Fund Industry (ALFI) started 2020 coming off of a record year in assets under management. Private Funds CFO caught up with ALFI chairperson Corinne Lamesch to talk about how the pandemic affected ALFI’s outlook and its rate of growth. Her comments below cite data that include hedge funds.

How have your expectations at the start of this year changed as a result of the pandemic?

The Luxembourg fund industry had a really great year in 2019. We saw growth in all asset classes, we had an increase for the whole year of 16 percent in AUM and I think we saw an all-time record for the Luxembourg Fund Industry in January, when we almost reached ‎€4.8 trillion in assets under management.

Obviously in March, financial markets saw the widest downturn in decades, and for us in Luxembourg, we saw a sharp decrease in our overall fund assets (of) around 11 percent. Most of it was due to market movement, and we had only around 2.2 percent and 2.8 percent of redemption or client outflows, which is a good trend for a crisis like this.

I think that it also shows that we haven’t seen a real run on funds as we might have seen in 2007 or 2008 and now the tickers from April and June show this positive trend, so we can see inflows. The official numbers have not yet come out, but I think we will again be at levels of assets under management which we saw in December 2019, getting us back to the €4.6 trillion to €4.7 trillion AUM point. And that would obviously be a great outcome. It shows that we, the Luxembourg asset management sector, have weathered the storm well and we have proven to be resilient.

“The number of funds over €1 billion has doubled in the last 12 months”

What are your predictions for domiciling rates for the rest of the year?

It’s obviously very difficult to predict the evolution of a number of funds but I think one trend which we have already seen before the covid-19 pandemic was a reduction in the number of funds being built. There have been mergers or liquidations, reshaping of our fund range to make it more efficient, but in parallel, the number of new funds which are being established is still good and still positive and growing.

It shows us the dynamism in the market and I think we will definitely still see new alternative funds being launched. I think we had 52 new fund launches on real estate investment funds (REIFs) and I think alternatives will definitely be a sector where we will still see new fund launches.

Last year you saw the number of funds larger than $1 billion double since 2018. What are your thoughts about that, and will that trend continue?

If you look at this trend of mergers and consolidations, it’s not necessarily a bad trend because it means that the average size of the fund measured is going up, which is usually good for investors because the ongoing charges are going down in parallel. (Click here for more Private Funds CFO coverage on this)

We also did a survey on alternatives and it showed that the trend of increasing fund size is also true in the alternative space…in our survey we saw that private equity funds’ average size significantly increased from €132 million per fund to €200 million. The number of funds over €1 billion has doubled in the last 12 months, again. We’ve historically had smaller funds, but now we also see large fund houses which are active in the sector and present in Luxembourg. I think the trend will continue. In my view, alternatives is the most vibrant asset class in Luxembourg at the moment.