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Germany and Luxembourg already share a very robust economic relationship, with financial services standing as a cornerstone of their bilateral ties.
Luxembourg, known for its sophisticated financial sector, is a hub for private banking, investment funds, and wealth management, attracting German banks, asset managers and investors seeking a stable and favorable political and regulatory environment. Conversely, Germany, as Europe's largest economy, provides a significant market for Luxembourg's financial products and services. This economic interdependence is further reinforced by their shared commitment to the European Union's single market, which facilitates the free movement of services and financial cooperation.
German asset managers in Luxembourg
German asset managers have been a key contributor to the development of the Luxembourg fund ecosystem since its early stages in the 1980s. Most recent statistics published by the Luxembourg competent authority, the Commission de Surveillance du Secteur Financier (CSSF), show that, as of the end of March 2024, 44 authorized investment fund managers (IFMs) of German origin manage Luxembourg funds, making Germany the number one jurisdiction of IFMs in Luxembourg.[1] In addition, 14.9% of Luxembourg net assets (amounting to 32% of Luxembourg funds) are initiated by a German promoter.[2]
[1] Investment fund managers situation as at 31 December 2023, CSSF
[1] Origin of UCI initiators in Luxembourg, CSSF, March 2024
Fund tokenization
The tokenization of funds is set to cause a revolutionary shift in asset management, offering increased liquidity, transparency, and accessibility. Luxembourg's progressive stance on blockchain and fintech makes it an ideal location for German asset managers to explore fund tokenization. Already in 2019, a first bill of law aimed at providing legal certainty for securities transfers using blockchain technology was introduced . Recently, the newly elected government made further commitments to creating more transparency around the rules for digital assets and tokenization designed to further enhance Luxembourg’s competitiveness. In addition, the CSSF has setup a dedicated Innovation Hub providing German-speaking guidance and support in relation to fund tokenization and other broader digitalization topics.
Your Luxembourg fund toolbox
To capitalize on the above opportunities, Luxembourg’s legal and regulatory framework continually undergoes enhancements to provide asset managers with the most effective tools for structuring their investments and safeguarding the interests of investors. Several investment vehicles are available for investment in transferable securities and alternative investments, including real estate, private equity, venture capital and hedge funds. The Luxembourg financial sector offers a versatile array of both regulated and unregulated investment vehicles. Below there is a matrix summarizing the Luxembourg vehicles which are directly or indirectly supervised by the CSSF. Note that funds can also be set up as securitization vehicles (as per the Law of 22 March 2004 on securitization, as amended) or any legal structure available under 1915 Law (such as, SCS, SCA and SCSp). Funds can also be set under other EU labels (e.g., ELTIF, EuSEF and EuVECA).
Strategic opportunities for German Asset managers in Luxembourg
There is reason to believe that some of the mega trends set to shape the global asset management industry in the years to come could strengthen even further existing ties and drive growth in assets under management by German firms in Luxembourg.
Demographics by accessing a broader international investor base
Luxembourg, with its reputation as a global investment fund distribution hub has traditionally offered German asset managers unparalleled access to international investors. The Grand Duchy's robust regulatory framework, multilingual workforce, and its network of double taxation treaties create an attractive environment for cross-border fund distribution. Such access is likely to become more important going forward. Like other major Western economies, Germany is facing a fundamental challenge with rapidly deteriorating demographics on the one hand and substantial investment needs into technology, infrastructure, education, and healthcare on the other hand to ensure the economy retains its competitive edge. Access to international capital is therefore vital to the success of the wider transformation of the German economy, with Luxembourg well placed to offer a gateway to the much-needed broader international investor base.
Retailization of private assets
The trend towards the democratization of private assets is gaining momentum, and Luxembourg is at the forefront of this movement. The recently revisited ELITF 2.0 regime is gaining considerable momentum in the Luxembourg market with regulators, asset managers and their servicers putting innovative solutions in place to facilitate the growth of this segment. Germany, with its more than 80 million potential retail investors and sophisticated retail distribution networks via local saving banks and financial intermediaries, is perfectly set up to capitalize on the growth of retail alternative investments funds (AIFs) offering new strategic growth opportunities for the industry.
Sustainable finance
Sustainable finance is rapidly transforming the investment landscape, and Luxembourg is a leader in this domain. The country's commitment to sustainability is evident in its range of ESG (Environmental, Social and Governance) focused investment vehicles and the Luxembourg Green Exchange, the world's first platform dedicated exclusively to sustainable financial instruments. Germany has long been leading the way in sustainable economic transformation supported by the strong demand of German retail and institutional investors to get exposure to green investments. Luxembourg fund vehicles and solutions, in particular in the private asset space, offer flexible solutions to quickly raise capital and access investment opportunities globally.
Summary
Germany, as Europe's largest economy, provides a significant market for Luxembourg's financial products and services. This economic interdependence is further reinforced by their shared commitment to the European Union's single market, which facilitates the free movement of services and financial cooperation.