Where can Luxembourg win next?

00:00:03: Hello and welcome to a new annual report podcast series.

00:00:06: To open this edition we'll take a look at what moves the market, where next wins could come from?

00:00:12: In today's episode I'm joined by Brita Bornef Alfie CMO and Serge Weiland Alfie CEO.

00:00:18: When you see the strongest engines of new business for Luxembourg Serge, perhaps I could start with you on a broad market perspective.

00:00:28: and then Brita come to your own sustainable product and investor demand.

00:00:33: To start with what I like to say about Luxembourg is, we are a well-diversified investment portfolio.

00:00:42: We're actually set up also weathering heavy headwinds and in the current environment that's probably key advantage for us.

00:00:52: At the end of twenty five we had assets of eight point three trillion domiciled in Luxemburg.

00:01:02: We've continued throughout the year to see a strong growth in alternatives that went actually from USDF between USDF and USDF.

00:01:11: So, that's a twenty percent increase through this year which continues to be impressive even given the headwinds also in private market space everyone is aware of.

00:01:23: The other one I'd like to highlight is also the strong growth in ETFs, which we've seen in Luxembourg.

00:01:33: ETF's have continued to grow at the European level.

00:01:37: We have seen inflows to a tune of ninety billion over-the year Which has basically thirty percent market share Of Luxemburg and the European Level for ETF.

00:01:49: So that shows that Luxembourg has a strong ETF ecosystem has a number of very strong ETF products, which enables us also to continue surfing the wave of these products.

00:02:05: Indeed Luxembourg is extremely well diversified and I believe that the strongest engine for business today are shifting.

00:02:17: New Business for Luxemburg won't come from single product but it will rather come from a combination of trends, including digitalization.

00:02:29: So for example private assets being the main growth engine are moving beyond institutional investors into also wealth channels and retail distribution.

00:02:43: sustainable finance is no longer a product as such But its becoming more embedded across all strategies.

00:02:52: ETFs that were mentioned earlier on are also accelerating retail and digital distribution.

00:03:00: Coming now to cross-border distribution, this remains one of Luxembourg's defining strengths in a more competitive market.

00:03:09: What brings new mandates?

00:03:11: And attracts new structures at Luxemburg?

00:03:14: Indeed as you reminded ourselves Luxembourg continues to lead as a cross-border domicile.

00:03:23: Luxemburg products are distributed into eighty countries worldwide, we're fortunate also in Luxembourg that our home market is not only Luxemborg fortunately but it's the whole of Europe with four hundred and fifty million citizens which is huge if you think about It's larger than the US.

00:03:47: And I think there also comes an opportunity in the context of European initiatives around investment and savings union, where we know that European investors save a lot but do not invest enough.

00:04:04: So that will certainly generate some of the growth potential going forward.

00:04:33: decade or so, Asian asset managers using Luxembourg as a gateway to European investors.

00:04:42: Within the Asian continent if we look a little bit closer there is one country that stands out for me and it's India.

00:04:51: India is expected to remain one of the fastest growing major economies in the world.

00:04:57: Traditionally, Indian households they preferred physical assets like gold and real estate over financial investments.

00:05:06: Now this is slowly changing with more people investing in financial markets.

00:05:13: India's public market fund industry has grown strongly With assets rising about sixteen percent from twenty seventeen to twenty-twenty four.

00:05:24: But only three percent of the population are investing in stocks.

00:05:29: This shows great potential for future growth.

00:05:34: Mutual funds or investment funds, Indian funds have become popular because they allow a small investment and are easy to access.

00:05:45: so growth there has been supported by higher incomes in the population better financial awareness, financial education more retail investors and digital platforms.

00:05:58: Foreign investment is also important for continued growth, Luxembourg already as we know plays a strong role as the major foreign portfolio investment hub in India and could grow further especially through structures like potentially Gift City.

00:06:15: so India is market that are keeping an eye out on collaborate with counterparts to see what extent we could develop that market, give additional benefits and business opportunities for Luxembourg funds.

00:06:36: When you look at another continent such as Latin America Brazil stands out one of the world's ten largest investment fund centres With two point one trillion dollars in assets over thirty three thousand funds and a thousand asset managers.

00:06:58: So huge potential there, also the industry is expected to grow at around thirty-three percent.

00:07:07: so again an opportunity for Luxembourg especially since one of the local laws has been changed back in twenty twenty four allowing Brazilian domiciled funds via master feeder structures to invest a hundred percent in Luxembourg usage funds.

00:07:25: So this is also something that happened recently, which will drive and can drive growth for Luxemburg.

00:07:34: Another country that comes to mind is Chile Which has just announced its pension reform back in twenty-twenty five gradually increasing contributions in their pension funds, but equally meaning that the country is opening up to the extent it will allow increased investment in private assets.

00:08:01: So again here definitely an opportunity for Luxembourg.

00:08:07: another area or continent would come to mind as the Middle East where we've also seen some strong growth, especially when you look at sovereign wealth funds and family offices who are also increasing their allocation in alternatives.

00:08:24: There may be fewer clients in those countries but the tickets themselves are much bigger.

00:08:31: so again I think that GCC countries need to be looked over time because they could mean additional business opportunities for Luxembourg.

00:08:41: A lot of promising opportunities you've mentioned across many parts of the world, could we possibly now maybe turn to sustainable finance?

00:08:49: Could this be part of these growth

00:08:51: opportunity?".

00:08:52: It feels as though it has entered a more mature and pragmatic phase.

00:08:56: And Alfie has recently published a new snapshot of the market in this space.

00:09:01: What does that tell us about?

00:09:03: where the markets stands today is in terms of maturity client demand.

00:09:10: Indeed, sustainable finance is no longer niche.

00:09:14: It's now a strategic priority and also key driver of economic transformation not only in Europe but globally.

00:09:23: Just last month Alfie the LFSI with the support of PwC have published The Sustainable Finance in Europe and Luxmerc twenty-twenty five study.

00:09:34: indeed this study reveals that Lux Merck has maintained its leading position as Sustainable Finance Hub in Europe, holding thirty-one percent of Europe's sustainable public market fund assets with eight hundred and fifty billion as at the end last year.

00:09:54: Total Assets Under Management for Sustainable Public & Private Market Funds in Luxembourg reached one point six trillion euros also by the end of this year.

00:10:05: And if we look at current geopolitical and energy contexts, not an easy one.

00:10:10: Could this moment actually accelerate Europe's green transition?

00:10:14: We've heard a lot over the past two years that there was some degree of questioning or skepticism sometimes around sustainable investing.

00:10:25: I think really this crisis in the Middle East clearly demonstrates energy transition should be a key priority and remain a key priority, really top of the agenda.

00:10:37: So for me I think you know that currently political context only confirms that.

00:10:45: certainly European institution investors have made the right choices.

00:10:49: so we need to continue building capacity also in financing those transition infrastructures.

00:10:56: not I think a sustainable production of energy through wind and solar, but also investing in the grid.

00:11:07: We know energy and electricity requirements will only probably increase in the foreseeable future given also that developments in AI we're all aware depend on how fast we can accelerate that transition.

00:11:28: So it gives me a lot of comfort and hope for sustainable investing, I think Luxembourg continues to be very well positioned in that area.

00:11:37: To conclude allow me challenge your storyteller from the future talent.

00:11:41: We are in twenty thirty.

00:11:43: Where do you think next chapter of Luxemburg's growth will be written?

00:11:48: This digital impact of AI is everywhere in things we do.

00:11:56: I think, probably only at the beginning this revolution.

00:12:00: We also believe that it will deeply transform how financial products are being... produced, manufactured but also consumed going forward which is the case with the impact of tokenisation and blockchain by the way.

00:12:21: deeply transform the way financial products can be accessed and investment funds will be structured, distributed going forward.

00:12:31: And this is why also we've put a lot of efforts at Alfi to make sure that we bring community together or exchange on best practices experiences in use of AI, blockchain technology Look at tokenization, for example.

00:12:51: I think we have not yet reached an inflection point where We see you know demand really picking up.

00:13:01: but I expect that to come fairly quickly.

00:13:05: When i say fairly quickly, it's probably in the next couple of years.

00:13:10: we are now able to produce tokenized investment products and investment funds in particular.

00:13:16: We have a very strong robust legal regulatory environment in Luxembourg.

00:13:22: so create a deep transformation of fund distribution going forward.

00:13:29: And we can learn from countries in Asia, such as China for example who are very advanced in tokenized funds.

00:13:38: and on the other side I think On artificial intelligence, there is of course the efficiency side of things.

00:13:45: How can we ensure that this industry continues to work on its cost base?

00:13:50: Continues to reduce costs but also in other front.

00:13:54: in a way AI will be used by investors.

00:13:58: When I spoke about new business opportunities coming from different countries and regions I also believe that Luxembourg will become a global capital routing hub where capital flows increasingly will pass through Luxemburg from Latin America, Middle East and Asia.

00:14:22: So that Luxeberg is becoming less of an European hub but really much more a global routing system for capital.

00:14:30: When we look at the future I would like to think that Luxembourg has really become from a back office doer, centre of excellence.

00:14:42: To a front-office thinker and that has changed significantly the capabilities of Luxemburg being able change and adapt very quickly to those innovative challenges around digitalization, tokenisation the growth of private assets.

00:15:04: And at the centre of this I do believe that Luxembourg's fantastic toolbox... ...and the way it has been amended adapted and modernised over years have greatly contributed to its success and hopefully that will continue over the years to come.

00:15:25: Brita Serge, thank you very much!

00:15:27: What I'm taking away from this conversation is that moments of uncertainty can also open space for reinvention... ...for new ideas and moving with change rather than being paralysed by it.

00:15:39: This where the strongest jurisdictions stand out by combining scale with agility, innovation with credibility and growth with long-term relevance.

00:15:49: And for Luxembourg that means continuing to grow in private assets in long term savings and a more mature sustainable finance market!

00:15:57: Thank you for listening and read the animal report in full on alfi.edu.