In 2001 the Luxembourg specialised investment funds – or, as they are more correctly known, the funds whose shares/units are not sold to the public in accordance with the law of 19 July 1991 – kept up with the general growth of volumes on the Luxembourg investment fund market. Specialised investment funds were 6.04% up on the previous year, and investment funds open to the general public (public funds) up by 6.16%. This is truly remarkable – firstly because the number of specialised investment funds has fallen, and secondly because the markets generally caused fund volumes to contract.
The market for specialised investment funds in Luxembourg in 2001 was characterised by two dominant factors – firstly a concentration on fewer funds and secondly a relatively strong level of net sales receipts. Remember that those investing in Luxembourg specialised investment funds cannot be individuals, but must show that they are institutional investors. The number of investors in each specialised investment fund is not, however, limited (as is the case with specialised investment funds in Germany). Another unusual feature is that the term institutional investor is not limited to legal entities, rather it is defined as a company or organisation with a professional cash management system. From this definition, it follows that not only insurance companies, pension funds, industrial concerns or financial institutions are able to own such specialised investment funds but also those private holders of assets that have a professionally organised asset management system.

Concentration on fewer funds
This growing tendency to concentrate on fewer specialised investment funds can be clearly seen in detail in table 1. The number of Luxembourg specialised investment funds has fallen by 18, or 11.8%, from 153 funds at the end of 2000 to 135 at the end of 2001. Over the same period, although there was less of a decline in the number of sub-funds, the total still fell by 12, from 417 to 405, a fall of 2.9%. Accordingly, in the case of the specialised investment funds (table 2) the average volume per fund rose from E257m at the end of 2000 to E309m at the end of 2001, an increase of E52m or almost 20%. The average volume per subfund rose by about E9m or 9.6%, from E94m to E103m. For every 2.7 subfunds at the end of the previous year, there were three at the end of 2001. For the purpose of comparison, the corresponding average ratios for the Luxembourg public funds are as follows (the figures in brackets are the ratios for the previous year): subfunds per fund 4 (4); volume per fund E500m (e512m); volume per subfund e125m (e127m).
This means that, in ratio terms, specialised investment funds in Luxembourg are slowly nearing the levels of the Luxembourg public funds, while on the other hand these public fund levels are declining slightly. In any event, the total volume of Luxembourg specialised investment funds rose over the past year by E2,374m, or 6%, from E39,299m to E41,673m, taking it well above the E40bn mark. Specialised investment funds represent just under 4.5% of the total Luxembourg investment funds market, a figure that remained constant over the past year. Given the declining securities markets, this could only happen if the net receipts of new funds had risen relatively sharply. An updated list of Luxembourg specialised investment funds is published on the internet by the Luxembourg government financial sector regulator, the Commission de Surveillance du Secteur Financier (CSSF) at

Substantial net receipts of new funds
According to the CSSF, net receipts of new funds by the Luxembourg specialised investment funds, at E3.57bn, fell in 2001 by about 34% from the previous year’s level of E5.46bn. However, these net sales receipts continue to fluctuate at a substantial level, as it means that not far short of 10% of the year-end fund volume of the Luxembourg specialised investment funds stems from new receipts in the year in question. It is in any event due to the relatively high level of sales receipts that the well-known inroads in the market did not have a more profound effect on volumes in the Luxembourg specialised investment fund at the end of 2001.

Countries of origin of fund holders
There was a real sensation last year when figures were published for the first time by the CSSF that made it possible to identify the countries where the promoters of the specialised investment funds were domiciled, and thus de facto the countries of origin of holders of those funds. Few would have suspected that institutional investors from the countries that emerged as leaders were investing quite as heavily in the Luxembourg specialised investment funds market (table 3).
By the end of 2001 the rankings of some countries had stabilised, while some of the other countries had fallen well behind. The overall market volume for Luxembourg specialised investment funds grew by 6% over the year before; the proportion of investors from Belgium (+19.5%), the US (+12%) and Germany (+22.1%) rose substantially, and the UK now appears for the first time in the list of the nine most important ‘promoter-domicile’ countries. However, investments in Luxembourg specialised funds from Japan (–15.1%), South Africa (–16.9%), France (–30.8%), the Netherlands (–0.6%) and Switzerland (–6.8%) fell back sharply, and in 2001 Spain disappeared completely from the list of the nine most important countries. There is a plausible assumption for the strong showing of Belgian investors in Luxembourg specialised funds.
Because Belgian investment law does not allow ‘fonds dédiés’ (dedicated funds) that are structured in the same way as the specialised investment fund as an investment medium, the upturn in Luxembourg specialised funds of Belgian provenance is explained by the efforts of Belgian insurers to underlay their successful ‘unit-linked or portfolio-linked life assurance policies’ (branch 23) with Luxembourg specialised funds rather than Belgian public funds. The average volume per Luxembourg specialised fund of Belgian provenance amounts to over E180m (previous year E177m), compared to an average of E103m (previous year E94m) in funds for the whole sector. Even more impressive are the figures for all specialised fund units of Belgian provenance: at the end of 2001 the average volume was E1,372m (previous year E1,275m), compared to E309m (E257m) as an average for the sector.

Breadth of variation of investment policy and legal forms
Since 1991, in the development of Luxembourg specialised investment funds, the funds have only gradually extended over the whole spectrum of possible investment policies. Now, however (table 4), there are a number of definite keynotes. Three types of specialised investment fund, namely the equity-based funds, bond funds and holding funds (with the latter growing strongly) together make up almost 90% of the total volume of Luxembourg specialised investment funds. If we combine tables 2 and 5, as in chart 1, we can draw further extremely interesting conclusions about Luxembourg specialised investment funds:
q With well over 60% of total volume and numbers, the ‘Fonds Commun de Placement’ (FCP), or mutual fund, predominates; it is related to the German special fund;
q With between 30 and 38% of total volume and numbers, the next largest is the company-law form ‘société d’investissement à capital variable’ (SICAV), or open-ended investment trust;
q The ‘société anonyme d’investissement à capital fixe’ (SICAF), or closed-end investment trust, a form of fund even closer to the Aktiengesellschaft, is represented by only two companies, and can be disregarded;
q Chart 1 provides even clearer confirmation of the assertion that the Luxembourg specialised investment fund market is concentrated on fewer funds, and especially so with the Fonds Commun de Placement.

Listed specialised investment funds
The most striking changes during 2001 were seen in the listed specialised investment funds, and those changes are still being felt strongly in 2002 (cf table 6). Of the 15 listed specialised investment funds last year, six were wound up in October 2001 (four FCPs and two SICAVs), including all four specialised investment funds for which Crédit Lyonnais was acting as listing agent. In these six liquidated funds, eight subfunds or eight different unit or share classes were affected, although it must be stressed here that the Luxembourg stock market “sousfonds” do not necessarily correspond to the “subfunds” of the CSSF’s statistics, because of course on the stock market it has to be taken into account that depending on unit/share classes, eg reinvesting/ distributing and the like, the listing prices are different, and not just the subfunds.
To take the place of the six liquidated funds during 2001, only two new specialised investment funds were introduced on the Luxembourg stock exchange. These were the City Institutional Fund, an FCP with Citibank as listing agent, and the FRI Feeder Fund, a SICAV with three subfunds or share classes, with Banque Privée Edmond de Rothschild as listing agent. Otherwise, the major movements among Luxembourg specialised investment funds in the subfunds/unit or share classes sector did not occur until the end of the 2001 financial year, as can be seen in table 6 from the figures in brackets as at 1 February 2002. Here, the specialised investment funds CDC Global Asset Allocation Series SICAV and the FCP Allianz Pimco Advisory Fund show the biggest joint delistings of subfunds or unit/share classes, with respectively –7 and –16 sub-funds or unit/share classes. In any event, as at 1 February 2002, out of 11 listed specialised investment funds there are only 61 different sub-funds or unit/share classes (ie, 24 less than at the end of 2001) that are shown in the Luxembourg stock exchange gazette (côte officielle) with the remark that they are “valeurs mobilières reservées aux investisseurs institutionels”, that is ‘marketable securities reserved for institutional investors’.

Restricted disclosure, but domicile addresses
Luxembourg specialised investment funds may be held from external scrutiny, provided they are not ‘listed’, because they are protected by a restricted disclosure requirement. First and foremost, Luxembourg specialised investment funds do not need to make a sales prospectus available to the public. Specialised investment funds which have the legal form of a corporate body must nevertheless lodge their statutes with the commercial register, and insert them in Luxembourg’s official gazette, Mémorial C. But these statutes often give little away, and especially who is behind them. However, every Luxembourg investment fund, irrespective of type and legal form, must have a domicile address in Luxembourg which is publicly available in the list of Luxembourg investment funds that must be kept in accordance with Article 72 of the Luxembourg law on UCITS of 30 March 1988. But they must also have what is known as a promoter, whose name does not have to be published, but can often be deduced from the domicile address, depository bank, administrator and other similar information.
In the domicile list (table 7) of the Luxembourg specialised investment funds, thanks to the information provided by the CSSF, at the end of 2001 there were no longer any individual domicile addresses that could not be classified. From a German point of view, the recognised players on the Luxembourg specialised investment funds market are ADIG, DEKA, Landesbank Rheinland-Pfalz, MM Warburg and Oppenheim, plus SEB (formerly BfG) and HSBC Trinkaus & Burkhardt; the large Allianz specialised investment fund, however, is managed by Crédit Agricole Indosuez in Luxembourg.

Positive outlook
In absolute terms the Luxembourg specialised investment fund market is astonishingly large, even though in percentage terms specialised investment funds still has only a small share of the Luxembourg funds market. This could, however, be due to the international oversizing of the Luxembourg public funds market and to the flexibility of Luxembourg public umbrella funds, and large public umbrella funds may also conceal ‘similarly structured specialised investment funds’ in individual sub-funds. The feeling is positive for the continued development of the specialised investment fund in Luxembourg, especially if further progress is made on Fereira-style European harmonisation and the ban on unilateral discrimination by inter-EU ‘financial services’; we have already seen in 2001 that Luxembourg specialised investment fund volumes of German provenance rose by 22% from the previous year.
Hans Karl Kandlbinder is an institutional investment consultant based in Grafing near Munich