Combined strength: Luxembourg and your fund administrator

When you think of Luxembourg from a financial standpoint, strength and stability immediately come to mind. For decades, the country has built trust and credibility with the investment community. Luxembourg has remained solid and dependable throughout the years – even as other financial centers staggered under crises, downturns, pandemics and economic turmoil.

Starting a fund in Luxembourg offers numerous advantages, which is why the jurisdiction ranks as the largest in Europe and second largest in the world. But to maximize its benefits, you need an administrator with financial strength and stability to match. In this article, we hope you will learn what sets Luxembourg apart and why you should select a service provider with a solid reputation, robust balance sheet and profitable business that endures over time. .

What’s special about Luxembourg?

Several factors have enabled Luxembourg to thrive as a home for funds. Here are three of the most significant:

• Reputation for reliability: Luxembourg’s strong reputation has grown from a government and regulatory approach that prioritizes innovation, pragmatism and efficiency. Officials have worked to maintain flexibility for the finance industry, which gives investors extreme confidence in the reliability of the Luxembourg product.
  
  “At its essence, Luxembourg is a brand,” says Didier Delvaux, country head of Luxembourg for U.S. Bank. “It’s a brand built on a reputation for being a stable domicile for mutual funds, and it’s a brand that reaches across the world. The sheer size of the business and the fact that, for more than 30 years, it’s remained largely untouched by any scandals or default is a testimony to the strength of that brand and the strength of that product range.” 


• A future-focused outlook: The fund industry in Luxembourg stays focused on the future instead of resting on its laurels. The country continues to lead the way with sustainable investing and other innovation, such as the RAIF (Reserve Alternative Investment Fund) and the SCSp (partnership structure), along with tools to support those structures.
  
  “The industry here is constantly looking ahead in terms of ‘What are the next trends and the next opportunities?’ to continue to support and grow the industry,” says Didier.


• Credibility and integrity: The primary reason the Luxembourg reputation is so strong is that it bears the weight of credibility. There’s confidence that when the government rolls out a product, guideline or framework, it has integrity – that it will, in fact, be put into place. Investors trust new Luxembourg products because they emerge from a long lineage of other products that have been highly successful and highly resilient.

Financial strength in a service provider

Investors are drawn to Luxembourg products because of the strength of the country, government and industry. But what’s equally important, from a fund manager standpoint, is to find a local service provider that operates within the same framework of robustness, reliability and, most of all, trust.

“Many managers will actually specify that they want their provider in Luxembourg to be a big bank, because they want the reliability it brings,” said Didier. “They want to entrust their assets to a country that instills confidence. And within that country, they want a provider who’s robust and reliable as well.”

A financially strong administrator provides several key advantages:

• Well-developed infrastructure: Strong providers have significant capital that enables them to make significant commitments in terms of infrastructure, including human resources, systems resources and technology. Their stability permits a longer-term outlook, opposed to smaller firms with shorter-term outlooks and financial goals.
• Risk mitigation: Managers know a robust provider will have the capital to make the right investments to stay compliant with regulations. They know they’ll have the governance, framework and risk-management processes required to ensure compliance and minimize potential liabilities. 
• High credit rating: Luxembourg has a AAA credit rating from S&P, the highest possible. Choosing a provider that also has a high credit rating reinforces that strength. This is highly attractive to managers looking to protect their investors’ assets.

By pairing the strength of Luxembourg with that of a stable service provider, you put your fund in a prime position to help promote its long-term success. Find an administrator with the right reputation, reliability and resources, and maximize the advantages that Luxembourg offers.

Benefits of an in-market Luxembourg administrator

When selecting a third-party administrator for a Luxembourg-based fund, the foundation for long-term satisfaction – like in real estate – starts with three words: location, location, location. Here are four reasons you should choose an in-market team with a simple, clear and contained operating model.

1. Outsourcing has significant drawbacks

Outsourcing, in one form or another, is commonplace throughout the fund servicing industry. On the surface, sending work (e.g., administration, reporting, fund accounting, etc.) to lower-cost countries seems like a sensible, cost-effective approach. Many administrators choose this operating model and subsequently entice clients with attractive prices. But often, inefficiencies and other disadvantages can grossly outweigh potential cost savings.

“In our experience, clients who work with providers that outsource functions around the globe are unhappy for many reasons,” says David Kubilus, U.S. Bank Global Fund Services Chief Commercial Officer. “They don’t know who to call. They have difficulty getting timely responses they or their investors need. There’s a lack of client focus. There are time zone issues. And the list goes on.”

At U.S. Bank, it’s a core belief of ours that the client experience is significantly improved when services are provided in-domicile. That’s our business model. All functions are handled in Luxembourg (or occasionally Ireland or the U.S. if it makes sense for the client), and the client has a single point contact for a smooth, efficient partnership.

2. An in-market administrator is an accountable administrator.

A high-quality service experience comes from finding the right expertise combined with the right cultural match. This balance is best achieved when an administrator has their service sites in the domicile of the client or the domicile of the fund. By contrast, an organizational structure that functionalizes and outsources processes and service models to remote locations often yields a disjointed client experience.

Partnering with an in-market administrator reduces distance, time zone and communication obstacles. Your team is accessible, which means they’re accountable. As a client, you know what individuals you’re working with and where they’re located. And you’re able to rely on them as an extension of your own office. With proximity, the relationship model becomes one of partnership and provides the following benefits:

• Greater efficiency
• Faster issue resolution
• Increased responsiveness
• Streamlined communication
  • Between service groups
  • With the client, investors and other parties

3. An accountable administrator cultivates an engaged team.

For an in-market administrator, client accountability creates a strong incentive to develop a culture where all disciplines cooperate, collaborate and work as a cohesive unit. This can generate numerous advantages for clients, including:

• A solution-based relationship approach
• Anticipation of needs
• Proactive issue resolution
• Accurate prioritization

In an engaged environment, there’s a simple and clear allocation of work, but everyone shares the same goal. Each employee feels a direct connection to the client rather than just to their specific task. They understand the importance of their role to the relationship as a whole. And this, in turn, fosters cross-functional knowledge and deep expertise for best-in-class service.

4. An engaged team prioritizes the client experience.

The best administrators prioritize proactiveness, responsiveness and flexibility to ensure you’re able to get what you need when you need it.

“When you have an engaged team, your satisfaction as the client ranks as the driving motivational force,” says Didier. “Their focus is fixed on finding specialized ways to meet your specific needs rather than just checking the boxes on transactional assignments.”

In short, you want an administrator who won't let anything compromise the client experience. But this involves more than just desire. It requires infrastructure, resources and ongoing commitment. Look for a partner with the following characteristics:

• Robust, next-generation technology platform
• Financial strength and stability
• Flexibility to accommodate your specific structures and strategies
• Full range of fund administration, depositary, custody and account service capabilities
• Local experience

Indicators of efficient onboarding

Onboarding, CDD and AML protocols – especially in jurisdictions like Luxembourg to combat financial crime – can have a reputation for being tedious and frustrating experiences. But that doesn’t have to be the case. Here are five qualities to look for in an administrator that indicate you may be in for a seamless, streamlined process. 

1. Deep experience with onboarding, CDD and AML
   A tenured team understands exactly what local regulatory and internal-policy-required documentation they need for customer due diligence (CDD), anti-money laundering (AML) and financial sanctions compliance. Obtaining everything upfront, at the start of the process, reduces inefficient back-and-forth requests that add work and place additional demands on your and your customers’ time.
2. Jurisdictional expertise
   Onboarding should be a light touchpoint activity – with your administrator engaging you infrequently and only when necessary. To achieve this, you want professionals who are proficient in multiple jurisdictions and who understand the nuances of AML requirements, regulations, structure types and required documents.
3. Breadth of infrastructure and resources
   By choosing an organization with broad resources and an international infrastructure, you can expect streamlined processes and a standardized approach to onboarding.
   “A successful service provider has systems in place to adhere to all required standards,” says David. “This gives you confidence that you know your customers and that you’re adhering to those standards as well.”
4. Advanced technology and capabilities
   A technology-focused provider will have a sophisticated framework to check, monitor and assess risk during the onboarding process in an efficient fashion. They’re able to examine potential client pain points and develop flexible solutions that adapt as needs evolve while remaining compliant with policies and regulations – and therefore assist in combatting financial crime. This can produce faster turnarounds and smoother interaction overall.
5. An obvious desire for client service excellence
   "Find a provider that prioritizes the client experience, and you can rest assured they’ll do everything in their power to make onboarding as smooth and seamless as possible,” says David.
   Look for a team that’s accessible, available and adaptable – but that also has the infrastructure, technology and expertise to support their commitment to your needs.

If you have a Luxembourg-based fund or you’re considering one, make sure to thoroughly evaluate your administrators – specifically their service model, locations and onboarding process – to determine how equipped they are to support your growth.

To learn more about our European fund servicing solutions, contact us.