LUXEMBOURG: An Introduction

Luxembourg's economy remains among the most competitive and stable, both on a European and a worldwide level, as confirmed by the Global Competitiveness Report 2017-2018, issued by the World Economic Forum, which ranks Luxembourg 29th out of 137 countries worldwide. Luxembourg continues to score highly for its positive macroeconomic environment, its institutions, its good infrastructure, technological readiness and market efficiency.

For its part, the Global Innovation Index 2017 Report ranks Luxembourg the 12th most innovative country out of 128. The same report ranked Luxembourg as the world's 2nd most politically stable country.

Luxembourg’s size and many other features such as its AAA-rating, its political stability, the fiscal prudence, and its highly skilled multi-lingual and multi-cultural workforce make it attractive for international commercial and financial intermediation.

The investment fund and banking sector remains the most important business sector in Luxembourg and represents one third of Luxembourg's GDP. 2017 confirmed Luxembourg’s position as the second largest fund centre worldwide, right behind the United States. At the end of December 2017, 4,159.614 billion euros of net assets were under management in Luxembourg over 4,000 investment funds, which marks a historic peak and a growth rate of over 12% within one year. Luxembourg investment funds remain the first choice for cross-border distribution and are distributed in more than 70 countries.

Luxembourg remains the global centre for UCIs. By June 2017, approximately 4,130 UCIs, comprising over 14,500 compartments (sub-funds) were registered in Luxembourg. Luxembourg offers many solutions for the setting-up of funds, which depend on the different needs and the targets of the investors. Furthermore, Luxembourg UCIs can benefit, by application, from a “product passport” allowing the marketing of funds within the European Union and the European Economic Area (EEA).

Luxembourg’s investment funds have a dominant share in both the retail and the institutional marketplace in Europe. It is also a major centre for alternative asset classes, with more than EUR650 billion of assets managed by Luxembourg alternative investment fund managers.

Introduced in Luxembourg in 2016, the Reserved Alternative Investment Fund (RAIF) has already become a success. The RAIF is not subject to Commission de Surveillance du Secteur Financier (CSSF) approval before being launched, nor is it subject to CSSF supervision once launched. However, it is indirectly supervised via its authorised AIFM. By the end of 2017, over 250 RAIFs were created according to the list held by the Luxembourg trade and companies register, mostly in the real estate, private equity and venture capital sectors, which marks a monthly growth rate of over 200%. After one year, the conclusion can be drawn that the RAIF is an innovative investment structure that has proved to be a valuable addition to asset managers looking to set up investment vehicles in Luxembourg. It complements Luxembourg’s existing fund vehicles and contributes to making Luxembourg a more dynamic and competitive marketplace.

Luxembourg continues to attract Asian businesses. In 2017, China Everbright Bank (CEB) received approval to set up its subsidiary in Luxembourg. China Everbright Bank is the seventh Chinese financial institution to choose Luxembourg for its European continental hub. Luxembourg is one of the leading renminbi centres in Europe. Furthermore, in 2017, through a partnership of the Luxembourg Stock Exchange (LuxSE) with the leading Chinese stock exchanges, Shenzhen Stock Exchange and Shanghai Stock Exchange, Luxembourg’s connections with China have been further deepened in the field of climate finance by creating the first Chinese Green bond index series.

Alongside traditional finance, Luxembourg is also a major player in microfinance, with much of the world's Microfinance Investment Vehicles being domiciled here. Today, 61% of all global microfinance fund assets are domiciled in the Grand Duchy, which plays a crucial role in the financing of microfinance institutions in Africa, Latin America and other parts of the world.

Luxembourg also plays a leading role in driving forward sustainable finance: In 2016 the Luxembourg Stock Exchange became the first stock exchange globally to introduce a platform for green financial instruments and now lists over EUR50 billion of Green bonds from 27 international issuers. The Luxembourg Green Exchange targets issuers and investors financing green projects and sets high standard requirements for green securities. In 2017, the Luxembourg Stock Exchange, intending to broaden the spectrum of socially responsible instruments listed on its platform, opened a new segment dedicated to sustainable and social projects bonds, a sector valued at over USD23 trillion.

Luxembourg maintains its status as an innovative country at the forefront of technology and new resources. By implementing the law of 20 July 2017, Luxembourg leads the way in Europe by regulating the ownership of space resources. Space law provides that commercial companies operating within Luxembourg’s regulatory framework may legally appropriate resources acquired in space from celestial bodies, also called Near-Earth Objects. Space law also deals with the authorisation regime for the exploration and use of such resources.

Furthermore, Luxembourg has the ambition of becoming the European hub for financial technology, FinTech. Luxembourg FinTech companies can already benefit from a complete ICT infrastructure. Due to the size of the country and the large amount of banking institutions and fund administrations in Luxembourg, FinTech start-ups in Luxembourg can easily access a high number of clients and partners for their development.