Making the case for small state

By Gast Juncker (China Daily) Updated: 2014-03-17 07:23

Although there has been much debate over the European destination for renminbi trade, there is little doubt that Luxembourg offers the best prospects for investors.

The size of the investment fund industry in Luxembourg and its ranking compared with other global peers is in sharp contrast to its geographical size as the smallest member state of the European Union.

Luxembourg is the second-largest investment fund domicile in the world with more than 4,000 fund structures and 14,000 sub-funds.

The total assets under management of these funds run into more than 2.4 trillion euros ($3.33 trillion). Only the US mutual fund industry is larger, but it focuses solely on the US domestic market.

Over the past 25 years, Luxembourg has developed considerably and offers several facilities to asset managers and banks keen on using Luxembourg investment funds to access the Chinese markets or offer yuan-denominated products.

Luxembourg's rich experience in fund distribution and structuring has created a huge global pool of clients and made it a major destination for international funds.

More importantly, Luxembourg also offers funds planning predictability because of its political and economic stability and AAA sovereign credit rating.

Supportive government policies and the reactive, accessible regulators have helped the investment fund industry blossom in Luxembourg.

It also has innovative fund products design, attractive and predictable taxation and world-class infrastructure that supports investment structures across Asia.

As far as yuan business is concerned, it is expected that the asset management groups already present will leverage on their Luxembourg hub status to launch more yuan-denominated share classes or use their Qualified Foreign Institutional Investors or Renminbi Qualified Foreign Institutional Investor quotas for direct investment in China.

Additional fund management groups, mainly from Asia, will also look to Luxembourg to establish their European business.