Raymond Frenken, Managing Editor at Investment Officer LuxembourgInvestment Officer Luxembourg

In Flux: Luxembourg asset scene sizzles

Raymond Frenken, Managing Editor at Investment Officer LuxembourgInvestment Officer Luxembourg

Ah, September! That halcyon month when the aroma of freshly sharpened pencils mingles with the remnants of sunscreen. Welcome back, fund and asset managers in Luxembourg — Yes, you, with your tanned glow and a back-to-work gleam in your eye. 

Your office still bears the swelter of late-summer heat. Your offspring are enjoying their last week of freedom. And your boss? He or she is already contemplating how to cram two years of work into a festive year-end deadline. 

CSSF anything but idle

While you were immersed in a sun-soaked idyll — be it savouring a glass of rosé poolside in Provence or delighting in a Vino Nobile di Montepulciano at a Tuscan villa — Luxembourg’s financial watchdog, the CSSF, was anything but idle. The organisation dropped a significant mandate: all Ucits and AIF funds must thoroughly review their valuation methods. And pronto. By Christmas.

Courtesy of the European Securities and Markets Authority (Esma), this mandate arises from detected “shortcomings, weaknesses, and vulnerabilities” in the valuation of funds across Europe. It seems smaller managers have been a tad too enamoured with third-party data providers, especially for those tricky-to-price, less liquid assets. So yes, that rosé might need to be replaced by a strong espresso as you dive into the assessment and possibly corrective measures.

For what it’s worth: the national supervisor in Ireland, Europe’s other top funds hub, also is preparing a communication on valuations. More than a dozen national supervisors in the EU expect to present follow-up actions on Esma's valuation findings.

Fuchs & Co: The meltdown and the upcoming auction

Noteworthy summer chapter two: Fuchs & Associés Finance. After a court-appointed liquidation and a stern wrist-slap from the CSSF, its prime asset, Fuchs Asset Management, is now the belle of the auction ball. With a murky asset pool upwards of 1.5 billion euro, expect a flurry of interest and possibly an ensuing acquisition in the coming months, subject to CSSF approval.

 “Several” parties have expressed interest, a company executive has told Investment Officer.

Ireland or Luxembourg? The ETF seesaw

While we were getting our daily dose of Vitamin D, the European ETF landscape was shifting like the tides. Enter ETF 3.0: a new breed of active ETFs. Enhancing these traditionally passive funds with aspects of active management, as has happened already in the US markets, is creating a new generation of investment products also in Europe.

While Ireland may have the upper hand with products linked to US equities due to its US-Irish dividend tax treaty, don’t rule out Luxembourg just yet. Particularly for fixed-income ETFs, Luxembourg remains a formidable player.

Legal & accounting overhauls: all geared up

As if we weren’t busy enough, Luxembourg's lawmakers have been tinkering away. With new tax exemptions and a strengthened focus on European Long Term Investment Funds (Eltifs), Luxembourg is revving up for pole position in the investment sector. Additionally, the legal regime for accounting rules is being upgraded. SCSp partnership vehicles, often used for funds, and companies with balance sheets exceeding 500 million euro are looking at new reporting requirements — a step to enhance transparency and modernity.

So there we have it, dear readers. Your post-vacation in-tray may be overflowing, but at least it’s an exciting time to be in the fund and finance game in Luxembourg. Pass the espresso and buckle up; it’s going to be an exhilarating ride to the year's end.

Financial journalist Raymond Frenken is Editorial Manager of InvestmentOfficer.lu. He has followed international financial markets and EU financial regulation for more than two decades. In Flux is a regular column on Investment Officer Luxembourg shedding light on the Luxembourg financial ecosystem. 

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