The Luxembourg fund industry manages around €8.2trn in assets, a milestone that reflects decades of strategic development. The financial centre’s roots go back over 100 years with the establishment of the country’s first banks and the 1927 creation of the Luxembourg Stock Exchange.

But the transformation of Luxembourg was truly defined by the Ucits directive, stressed Association of the Luxembourg Fund Industry (Alfi) chairman Jean-Marc Goy. This directive, which covers the management and sale of mutual funds across the EU, is widely seen as the “game changer” that turned Luxembourg from a small domestic market into a premier international distribution hub.

The Ucits export model rests on a versatile “toolbox” of legal and operational structures. Unlike some of its European neighbours, which have historically favoured a single legal form, Luxembourg offers both corporate and contractual structures, catering to the diverse preferences of international promoters. These structures come in all flavours: equity, fixed income, multi-asset mutual funds or exchange-traded funds (ETF), as well as private equity, private debt or venture capital.

Eighty markets today, another 120 to go

Furthermore, the Luxembourg Financial Sector Supervisory Commission (CSSF) permits the use of English, French and German for regulatory communications, a flexible approach that gave the country a significant “head start” in the global market.

Luxembourg also pioneered the use of umbrella funds in the 1990s, a concept adopted from the US that was initially not accepted elsewhere. The grand duchy’s ecosystem is supported by a workforce of 70,000 professionals and a “short path” to government officials, ensuring constructive, ongoing dialogue with the ministry of finance.

Taxation is equally a critical factor in global distribution

Britta Borneff, chief marketing officer , Alfi

“International is in our DNA, because we seldom think domestically, having commercial exchanges and relationships with the three countries surrounding us and even beyond,” said Goy. Today, Luxembourg funds are distributed in 80 jurisdictions worldwide, but the industry focuses on the approximately 120 countries where these products are not yet active. The Alfi chairman believes that this success is supported by Luxembourg’s political, financial and social stability.

MOU s and tax are key fund expansion

Expansion into the remaining 120 countries is viewed as a “long-term effort” that requires navigating complex political and regulatory landscapes. A primary technical requirement is the establishment of a memorandum of understanding (MOU) between the CSSF and local regulators, explained Britta Borneff, chief marketing officer at Alfi.

These agreements are essential to allow for the delegation of portfolio management. Without an MOU, an asset manager in a foreign jurisdiction would be unable to launch or distribute a Luxembourg fund.

“Taxation is equally a critical factor in global distribution,” said Borneff. Double tax treaties are vital to ensure that international investors are not placed at a disadvantage compared to those using local products. A prominent example of this challenge is the US market. Although a treaty between Luxembourg and the US exists, it does not currently cover investment funds as effectively as the treaty held by Ireland. This puts the grand duchy at a disadvantage, particularly for physical ETF products. “We don’t really understand why we are not on the same level of taxation,” added Goy.

Despite these hurdles, there is significant growth in emerging markets. In April 2024, Brazil updated its laws to allow domestic funds to invest 100% of their assets in Luxembourg funds, a move that has “revived the whole distribution landscape.” Similar efforts are ongoing in Argentina, Chile, Colombia, Peru and Mexico.

These successes are the result of “long-haul” engagement. Entering the Hong Kong market, for instance, required years of exchanging “long letters of questions” to satisfy local regulators. Ultimately, the goal is to ensure that whether an investor is in Buenos Aires or Seoul, they have access to the broadest possible spectrum of geographical and product exposure through a Luxembourg vehicle.

US home bias limits global access

The international success of a good or service often begins with strong export performance in the US. American managers have historically been content with their domestic market and preferred not to involve the “international crowd” in their home-jurisdiction products, explained Stefan Staedter, partner at Arendt & Medernach. Moreover, he noted that international investors often avoid investing directly in US funds to escape the high costs of US legal advice or potential withholding tax questions.

This article was written for the Asset management supplement of Paperjam magazine’s May 2026 issue, published on 29 April. It is published on the site to contribute to the full Paperjam archive. Click this link to subscribe to the magazine. Is your company a member of the Paperjam Club? You can request a subscription in your name. Please let us know via club@paperjam.lu