(l-r) Thomas Tilley, senior economist at the European Fund and Asset Management Association, Serge Weyland, CEO of Association of the Luxembourg Fund Industry, and Detlef Glow, head of Lipper EMEA research at the London Stock Exchange Group, delved into the reasons behind the differing Ucits fund flows recorded in Luxembourg, France and Ireland last year. Photos: Efama, Matic Zorman, LSEG; Montage: Maison Moderne

(l-r) Thomas Tilley, senior economist at the European Fund and Asset Management Association, Serge Weyland, CEO of Association of the Luxembourg Fund Industry, and Detlef Glow, head of Lipper EMEA research at the London Stock Exchange Group, delved into the reasons behind the differing Ucits fund flows recorded in Luxembourg, France and Ireland last year. Photos: Efama, Matic Zorman, LSEG; Montage: Maison Moderne

In a year marked by divergent trends, Luxembourg’s Ucits faced outflows primarily in actively managed and multi-asset funds, while Ireland and France captured significant inflows, driven by investor shifts towards ETFs and money market funds, three industry experts have told Delano.

In 2023, Luxembourg-based undertakings for collective investment in transferable securities (Ucits) funds, the largest type of investment fund in the country, experienced net outflows in 10 out of the 12 months, resulting in a net outflow of €86bn. By stark contrast, Ireland and France, ranking as the second and third largest fund domiciles in Europe respectively, recorded significant net inflows of €169bn and €23bn, data compiled by Delano shows.

Despite these net outflows, Luxembourg’s Ucits observed an increase in assets under management of €214bn, equating to a 5% rise in 2023, while Ireland and France experienced even higher growth rates of 14% (€403bn) and 10% (€80bn) respectively.

Structural differences

Responding to these findings, Thomas Tilley, senior economist at the European Fund and Asset Management Association, from where the data was compiled, offered an analytical perspective on the distinct trends across the major domiciles. He first addressed the potential causes suggested by Delano, clarifying that the flows “are unrelated to a significant number of funds being established or closed, and are not connected to funds relocating to Ireland.” Instead, the flows are “very much related to the specific types of funds that are predominant in these main domiciles and to strong investor preferences observed over 2023 and continuing into 2024.”

Tilley said that Ucits exchange-traded funds recorded unprecedented inflows in 2023, reaching a total of €169bn. “A majority of ETFs in Europe are domiciled in Ireland, representing 70% of its net assets, in contrast to 23% in Luxembourg. This is one of the key reasons behind the strikingly high net inflows into Irish funds,” he explained. Irish ETFs were responsible for €141bn, representing about 83% of the entire ETFs’ net inflows. “ETFs in Luxembourg also registered net inflows, but the market is significantly smaller, so these amounted to only €28bn.”

Notable outflows and inflows

Further dissecting the fund flows, Tilley noted that two specific types of Ucits experienced notable net outflows: Non-ETF (primarily actively managed) equity funds and multi-asset funds, with outflows of €95bn and €119bn respectively. These fund types, predominantly domiciled in Luxembourg, led to significant outflows from the country--€87bn from non-ETF equity funds and €56bn from multi-asset Ucits.

On a positive note, the inverted yield curve prevalent for much of the year spurred very high net inflows into Ucits money market funds, totalling €170bn. “Luxembourg-domiciled MMFs captured the majority of these inflows, receiving €78bn, followed by France with €45bn and Ireland with €38bn,” Tilley concluded.

Active equity funds

, CEO of the Association of the Luxembourg Fund Industry, echoed the sentiment that Europe’s investment landscape in 2023 was characterised by significant inflows into MMFs and passive ETFs, while equity funds generally faced redemptions. “These shifts in asset allocation explain the positive net flows observed in Ireland and France, given their relative overexposure to money market funds and [for Ireland] passive ETFs, as well as the outflows in Luxembourg due to its exposure to actively managed equity funds.” On a different note, Weyland emphasised Luxembourg’s robust growth in private market funds, stating, “private assets have continued their very strong growth in Luxembourg...with an AUM growth rate of 20% for Raifs [reserved alternative investment funds] and special limited partnerships, reaching total assets of over €1trn at the end of 2023.”

Taxation

Detlef Glow, head of Lipper EMEA research at London Stock Exchange Group, reflected on the underlying trends, told Delano, “Luxembourg is by far the largest fund domicile in Europe for mutual funds, while Ireland is the premier ETF domicile in Europe.... Especially within the equity segment, the trend of shifting money from active to passive products may have contributed to the outflows from Luxembourg-domiciled funds and inflows into Ireland-domiciled products.”

Glow also highlighted the strategic advantage Ireland holds due to its with the United States, making it an attractive hub for funds investing in US equities. Regarding the fund flows in France, Glow elaborated, “2023 was a year with strong inflows into money market products, a trend which contributes to the inflows in France, as French investors--private, institutional and corporations--generally invest more money into money market products than their pan-European peers.”

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