The soaring rate of inflation has left virtually no developed economy untouched, spurring interest rate hikes unknown to younger generations. This cost-of-living crisis is having an impact even on the investment fund industry. “Compared to last year, the financial sector as a whole, and the investment fund industry with it, has found itself in a whole new world,” said , director general of the Association of the Luxembourg Fund Industry, introducing the second day of the Global Distribution Conference.
“External factors beyond our immediate control have catapulted investors and the entire asset management ecosystem into circumstances that very few could have imagined,” Thommes stated, noting that the ongoing war in Ukraine, while regional, is already having global repercussions. An important point, he said: “Cross-border distribution depends on, and is defined by, the accessibility of markets and geographic regions. Geopolitical developments have a direct influence on the ease and success of reaching investors across national borders and jurisdictions.”
A commissioned study
With this in mind, Alfi commissioned financial data and technology provider Broadbridge to carry out a of investment funds. “We have very rich data sets on flows,” commented Liam Martin, director of global insights at Broadbridge, citing “a view of where assets are moving in the industry”. He added: “We also have data on third-party distributors’ perceptions of asset managers.”
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With €11trn in assets under management, the European fund industry ranks second globally, behind the North American market with €24.9trn in assets. However, in terms of cross-border distribution of funds, the European market leads the way with 50% of total global assets. It should be noted that cross-border distribution is almost non-existent in the North American market.
From one paradox to another
Italy, Switzerland and the UK are the three main European markets for cross-border distribution of investment funds. But, paradoxically, it is Luxembourg that stands out as the main location for funds distributed on a cross-border basis. This concerns nearly €3.5trn in assets under management in Luxembourg, i.e., 55% of the total assets of funds distributed internationally. This puts the country well ahead of Ireland, which has €2.2trn, and the Cayman Islands, with €125bn.
Another paradox is that while Luxembourg remains the preferred domicile for cross-border distributed funds, the majority of assets are managed by US managers. US firms manage no less than 48% of all internationally distributed fund assets. Swiss managers handle 11% of these assets, and French and British managers 10%.
Europe remains by far the most important recipient region for distributed funds, with Belgium at the top of the list. It received a flow of €2.2bn in 2022.
Originally published in French by and translated for Delano