Specialised funds make E40bn impact
It was not until mid-1991 that Luxembourg investment authorities realised the eventual importance of specialised investment funds for the Luxembourg fund marketplace. Around that time the German Spezialfonds had acquired a market share of over 50% of the German investment funds market. But on July 19, 1999 a law was passed by the Luxembourg Parliament with the headline ‘Law concerning those Undertakings of Common Investments (UCI) whose shares or parts are not destined for public offering’ - meaning- specialised investment funds which could be acquired by institutional investors only. That law is remarkably short (consisting of only seven articles), materially mostly referring to the famous UCI-law of March 30, 1988, and does not restrict ‘institutional investors’ to moral persons, but defines them as enterprises or organisations with a professional treasury.
By doing so, not only insurance companies, pension funds, industrial firms or financial institutions, but also large private fortunes which are organised professionally can be regarded as ‘investisseurs institutionels’. This proved to be a very wise decision by Luxembourg law makers. In stating the case for this Luxembourg specialised investment (LSI) funds law, it is expressly said that the then existing disadvantages of the Luxembourg financial marketplace with respect to German ‘Spezialfonds’, French ‘Fonds Dédiés’, British ‘pension trusts’ or ‘unit linked insurance products’, should be removed.
But contrary to expectations of experts, Luxembourg Chamber of Commerce as well as of the Luxembourg State Council who had all given favourable votes in the legislative bodies for that law, the development of LSI started in a very restrained manner after the inauguration of the law of July 19, 1991 (see table 1). Only two specialised investment funds with four sub-funds with an average volume of E15mn per sub-fund appeared in 1991 after the law had been promulgated in the mémorial on August 2, 1991.
The immediately following years did not see a great upswing for LSI. However from 1996 on this new investment vehicle blossomed, doubling in volume year after year until 1999 and reaching E40bn by the end of 2000 with a remarkable E100m per subfund. However the LSI portion of the whole Luxembourg investment fund market is still rather tiny (only about 6% in numbers of sub-funds and about 4.5% in volume terms).
That also was the year when LSI first appeared on the list of quotations on the Luxembourg Stock Exchange it remains listed with growing figures and with the additional notice ‘for institutional investors only’ (see table 2).
The most recent list of LSI published on the internet at www.cssf.lu under ‘entités surveillées’ then ‘liste...du 19.juillet 1991’ comprises as at 11/2000; 94 unit trusts (Fonds Communs de placement), 54 SICAV’s , one SICAF and one SARL.
The breakdown of the volumes can only be given as at 10/2000 (see table 2) showing the dominant role of unit trusts followed by SICAV’s with a ratio of 70 to 30. The volume of the other legal forms of LSI is negligable.
Since the LSI, apart from those which are exchange traded, are subject to restricted publicity, it is difficult to trace the origin of the assets put into LSI. Recently however, CSSF-Luxenbourg has disclosed figures which are summarised up in table 3. A country of origin of a sponsor does not necessarily mean that the investors come from that same country, but suggests at least that the corresponding investor is in some way ‘connected’ with the sponsor. At any rate it is surprising that the US, Belgium, Japan and South Africa rank first in the list of countries of origin of sponsors of LSI.
Hans Karl Kandlbinder is an investment consultant, based in Grafing near Munich