Panellists talked about trends and challenges in the asset management sector, topics such as ESG/sustainability, products enjoying tailwinds (including Eltif 2.0), the lasting impact of Brexit, attracting talents and cost management.

Sustainability/ESG: do you consider the initial parts of the SFDR a success?

“Some might say that it’s still in its childhood phase [and] it needs a bit more maturity in order to be able to assess whether it actually has met its initial objective,” observed , Nordea Investment Funds.

The companies taking “into consideration the various criteria that are needed to be compliant with the requirements [will be] rewarded, ultimately [with greater] valuations,” said Arendt & Medernach’s .

“The objectives of the EU [was] to bring forward sustainable investments to people's minds and to minimise greenwashing,” said Joshua Stone, EQT Group. EQT launched “handprint 2030,” a listing of 23 commitments, goals and ambitions by 2030 which had a different focus compared to SFDR, a regulation that Stone does not consider “perfect.”

Sustainability/ESG: which piece of legislation do you think is the hardest to implement? How have you circumvented the roadblocks?

“On the operations side […] the biggest issue was data management, how to gather the data but also to implement it in our value chain,” Kai Nemec, Union Investment Luxembourg said, noting that the use of standardised data from external providers has eased the process. Collecting and normalising the data in Union’s systems on private markets remain a challenge.

Sustainability/ESG: How do you cope with the contradictions induced by the various components of E-S-G, for instance when companies need to fire employees (a negative for S) upon the closure of a highly polluting manufacturing plant (positive for E)?

“Classifying [funds] as article eight and article nine push to invest in sustainable companies [that is] somehow diminishing our ability to invest […] in dirty companies that we want to transform […] but we’re actually struggling to get the conviction outside to be able to do so,” sighed Stone. He added that the challenge is even harder with article nine funds “where investments in [those] funds have to be proven to be sustainable from a social or environmental perspective.”

“In certain parts of the globe, especially in emerging markets, there is a constant duality between the E and S,” said Chhor. Otherwise, she explained that the manufacturers making very small margins and confronted with a need to reduce greenhouse gas emission must make difficult choices.

“I think we need to move away somehow and shift our thinking process from solely looking into environmental issues in isolation, towards a more holistic approach where we reflect about the outcome of the broader impacts in a broader social perspective,” commented Chhor. She suggested that a comprehensive approach should also account for the needs of the companies (profitability) and the shareholders (dividend).

Sustainability/ESG: a SFDR consultation was launched by the European Commission in early September. In the second part of the review, the commission proposes two different approaches, either to reinforce the article eight and nine that we know today and add additional criteria, or alternatively to create a brand-new categorisation focusing on the type of investment, such as positive contribution, transition, exclusion, etc. Which option do you favour?

“Option two means that you basically start from a totally different basis. So, you do a little bit more what the FCA in the UK is doing,” said Bourke. She concluded: “From my own perspective, I feel that the market is a little bit more leaning towards labels.”

Chhor did not appear particularly enthused about moving into a “totally new” regulation given the implementation efforts undertaken by her organisation so far. She added: “I would welcome using what was already there in level one and level two and there has to be more guidance.” She wishes that the asset managers will be able to maintain some flexibility to determine the content of these different categories.

Public and private investment developments: which of your financial products currently has the strongest tailwind?

“On the retail side, it’s the bond funds […] and the money market funds,” said Nemec. “We had the first discussion in house regarding the renaissance of guarantee funds.” He explained that the institutional business is “more focused on corporate bonds.” Elsewhere, Union does not see “good returns” in the private market compared to the bond market on the back of “hard competition.”

“[We are] investing in private markets almost exclusively,” said Stone. Originally focusing on institutional investors, Stone explained that EQT has been broadening their client spectrum by targeting “private wealth individuals” given that they are investing only “around 2% of their assets in private markets” whereas the level for the institutional investors is “somewhere around 15%.” EQT is aiming at 12%.

How is your firm taking advantage of the new Eltif 2.0 regulation?

“We can leverage our experience of the open-ended real estate funds in Germany,” said Nemec. He mentioned that the new regulation enables to reach out to “real retail clients” Moreover, he thinks that it will ease portfolio construction by allowing more investments in Ucits instruments. Union plans to launch a fund in 1Q2024 based on infrastructure. “On the Investor side, we can leverage on our very well-functioning Mifid client acceptance procedure within our distribution network.”

Brexit, talents and cost: what is your best internal solution to overcome the talent shortage in Luxembourg?

“To hire some quite senior individuals […] you actually have to make sure that you have interesting things for them to do,” said Stone. He explained that you must implicate them “in the end-to-end process and [ensure] that Luxembourg is not just an afterthought, or you know, tick the boxes […] where we work hand in hand with the deal teams [and] with the investor relations team.”

As a firm, “one of the most important points is to show commitment to Luxembourg,” said Nemec. He noted that this is reflected by their new building at the airport, good IT equipment and various “individual trainings on all levels of seniority and for newcomers.” The company also offers two days seminars covering soft-skills and subject-specific topics.

Brexit, talent and cost: does your business or Luxembourg continue to take advantage of Brexit?

“[Luxembourg] got the private funds, the Irish got the hedge, the Netherlands got the banks […] the big inflow, most of it is now done,” said Bourke. “What is super important is to make sure that the team members are integrated with the team in London and that means culturally. You have to get your team in Luxembourg, to fly to London, get to meet with the team very regularly,” said Bourke.

Brexit, talent and cost: which part of your cost structure is the most helped by the Luxembourg ecosystem?

“The fact that there’s more and more sophistication, competition, and that works for any type of service providers […] I think the fact that we have a lot of law firms coming in [from] UK, USA, for me is great, because it keeps the level up, it keeps people on their foot, making sure that they're always super competitive,” observed Bourke.

Compliance: do you feel that Luxembourg is at a disadvantage compared to other financial centres when it comes to compliance requirements? 

As a large asset management firm, “we’re always on the radar of our regulators for all kinds of surveys, questionnaires, you name it,” stated Chhor. She thinks that the stakeholders in Luxembourg are confronted with an “unequal playing field” as the level of information required before onboarding clients “may come as a surprise for some clients.”

On the other hand, Chhor “strongly believes that […] it created a brand for Luxembourg, to state that we are a place where we have no appetite for financial crimes.” She reminds the audience that the Financial Action Task Force published a report in September which stated that Luxembourg has “solid anti-money laundering and counter-terrorist financing framework and a good understanding of its money laundering and terrorist financing risks.”