Dan McNamara, Chief Strategy Officer and Chief Financial Officer

Luxembourg is a top contender for asset managers considering cross border expansion of their alternative funds. The country’s transparent regulatory framework, flexible fund structure, distribution network and deep bench of multilingual experts make the region an excellent European hub for alternative investments.

However, with access comes requirements. Managers looking to navigate Luxembourg’s specialized framework rely on – and in many cases are required to leverage – regional service providers. Experienced in-country partners provide multifaceted support throughout the investment lifecycle, which is fundamental to a successful Luxembourg-based investment vehicle.

For more than fifty years, Luxembourg has served as a strategic location for MUFG Investor Services and the broader MUFG Group. Many of our largest clients, including the top global investment managers, have Luxembourg sleeves as part of their investment programs. Currently, we safekeep more than $565 billion of assets under custody for Luxembourg-domiciled funds. With decades of experience, our team understands operational complexities resulting from the regulatory framework, market practices and other Luxembourg-specific nuances.

It is no secret that Luxembourg operations are more costly as compared to other jurisdictions due to regulatory parameters and the region’s high GDP per capita. Experienced providers, however, can build a partnership around an asset manager’s evolving needs, enabling quicker time to market and streamlined, efficient operations. Our follow-the-sun model provides support across the globe, with “boots on the ground” to support critical in-country activity in addition to a global network standing ready to provide services from other locations. In fact, our global model is authorized by Luxembourg’s supervisory authority – the Commission de Surveillance du Secteur Financier (CSSF) – to provide operational support for a range of investment funds. For example, our team currently supports a multinational investment company with its Luxembourg vehicles, operating as funds or smaller parts of larger fund structures, that include investments spanning across Europe and Asia.

Investment managers based outside of the European Union (EU) may require an EU-regulated product to expand across Europe. The CSSF in Luxembourg addresses this need with its business-friendly framework that provides a level of certainty and stability that attracts investment managers and investors alike. However, regulatory requirements for alternative funds vary depending upon factors including the type of fund, how it is structured and who manages it. From Alternative Investment Fund Managers (AIFM), depositaries, custodians and administrators to bank providers and corporate secretarial services, Luxembourg necessitates local knowledge and third-party support. These services – all of which MUFG Investor Services offers – help support success at each stage of the fund lifecycle so managers can focus on growing their investment programs.

Supporting Pre-Launch

Among other standard pre-launch activities, experienced partners work with asset managers as they identify the fund’s legal framework, consider fund structures, and appoint AIFMs. Engaging with relevant regulatory bodies such as CSSF in addition to identifying applicable laws and regulations is a prerequisite.

We have seen firsthand how complex this process can be, and that is why we custom-fit our services for each investment program. Our team works with asset managers as they select their fund structures, and we tailor the administrative approach and customize operational processes. Our one-stop shop approach provides asset managers with seamless support aligned with Luxembourg market practices and regulations. For example, we are licensed to serve as an AIFM or can work closely with clients’ AIFMs to meet their unique needs.

Supporting Launch

To ensure successful launch, asset managers are required to establish banking relationships and safekeeping partners. An ongoing friction point in Luxembourg is the speed of establishing a required local bank account for the fund itself. While in some regions establishing a banking relationship can take days or weeks, in Luxembourg it can require months. To safely fast-track this critical step, our team leverages its global banking service, offering account options with varying yield and liquidity. In fact, we have successfully facilitated client bank accounts in as little as one week, compared to the typical three-to-six-month timeline. This is due to our position within the MUFG Group, one of the largest banks in the world with approximately $3 trillion in assets.

As with other regions, Luxembourg outlines depositary and custody needs for the safekeeping and oversight of fund assets. Luxembourg-domiciled AIFs, for example, are required to appoint a CSSF-authorized depositary. MUFG Investor Services has deep experience partnering with AIFMs to provide depositary and custody services for clients across Europe, including depositary services for global funds with European investors. Our strong balance sheet and market expertise allows us to safely provide depository services globally, including those required under AIFMD and UCITS.

Ongoing Support

Fund administration, transfer agency activity and reporting and disclosures remain throughout the lifecycle of alternative funds. The CSSF, for example, outlines stringent Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements, including monitoring processes and maintenance of customer records. Experienced service providers help asset managers achieve compliance with these obligations, while minimizing friction with investors and enabling a smoother onboarding process.

At MUFG Investor Services, we recognize that traditional KYC processes are cumbersome and create frustration for fund managers and investors alike. That’s why we tailor solutions for each investment program. Our KYC approach streamlines documentation requirements and reduces redundant information requests, significantly cutting investor onboarding time. By leveraging our deep Luxembourg regulatory expertise and established relationships with local compliance frameworks, we create a smoother compliance process that minimizes friction and adheres to CSSF’s stringent KYC and AML requirements.

Luxembourg provides a uniquely attractive jurisdiction to launch an alternatives investment fund. However, there are costs and considerations involved when it comes to partnering with required service providers. Given the nuances specific to Luxembourg, asset managers should carefully select in-country operational support which will enable managers to better focus on delivering value to their investors.