Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 199

What Luxembourg and UCITS now offer Australian investors

Luxembourg, a small European country nestled between France, Belgium and Germany, has become the second-largest investment fund centre in the world after the United States. This article explains how the country has reached this position and explains what it can offer to Australian asset managers and investors.

UCITS: a spectacular European success story

The European fund industry is characterised by the success story of a truly European idea: UCITS, the acronym of Undertakings for Collective Investments in Transferable Securities. What started in 1985 as a European Directive with the modest ambition of defining a single framework for investment funds within the European Union ended up as a strong global brand for investment funds that is now recognised around the world.

This directive gave a tremendous boost to the European investment fund industry. UCITS started to flourish in the late 1980s, in particular in Luxembourg, which was the first country to implement the directive into its national legislation in 1988. It was the start of a long and steady development. Today, assets under management by Luxembourg-domiciled funds have reached €3.7 trillion (AUD$5.3 trillion) in some 14,594 investment funds.

UCITS were initially intended only to be marketed across the European Union and saw the creation of a new concept called the ‘European Distribution Passport’, which implies that a fund domiciled in one European country can be sold easily to investors located in all the other countries of the European Union. Since then, a growing number of countries in Asia, Latin America and the Middle East have accepted UCITS because the framework provides a stable, high-quality, well-regulated investment product with significant levels of investor protection. For example, in Latin America, Chilean, Peruvian and Columbian pension funds invest heavily in Luxembourg UCITS. For them, this is the most efficient way to get international diversification while offering a high level of investor protection.

Investor protection within the UCITS framework is a key concern of European policy-makers, with rules on diversification, risk management and capital requirements.

To date, UCITS is the only such fund model to achieve this international recognition. About 65% of all cross-border UCITS registrations belong to Luxembourg funds, which are distributed in more than 70 countries around the globe. Luxembourg gained a first mover advantage and attracted international fund promoters, and a professional and diversified asset servicing industry developed which in turn attracted more promoters. From a South Korean promoter selling Luxembourg UCITS to Hong Kong to a Brazilian promoter gathering retail investors from several European countries, UCITS have become truly international.

A major new development for Australia

Australia’s investors can now get easier access to Luxembourg UCITS. The Association of the Luxembourg Fund Industry (ALFI), the official representative body for the Luxembourg investment fund industry, has successfully negotiated with ASIC an exemption from the obligation to hold an Australian Financial Services Licence (AFSL) to provide financial services in Australia. The exemption, which came into force in November 2016, applies to certain financial services providers regulated by the Luxembourg financial supervisory authority, the CSSF. It should increase the range of funds, including alternatives and global infrastructure, offered by overseas fund managers to Australians, circumventing the need to apply for an AFSL in Australia.

 

Pierre Oberlé is Senior Business Development Manager at ALFI. This article is general information that does not consider the circumstances of any individual.

About the AFS licence relief: The Australian financial services regulator, the Australian Securities and Investments Commission (ASIC) has issued ASIC Corporations (CSSF Regulated Financial Services Providers) Instrument 2016/1109 which sets out the conditions of this AFS licensing relief. It came into force on 16 November 2016. A copy of the Relief Instrument is available here.


 

Leave a Comment:


RELATED ARTICLES

Best and worst performing equity funds of 2020

Three areas SMSFs should consider outsourcing

banner

Most viewed in recent weeks

Vale Graham Hand

It’s with heavy hearts that we announce Firstlinks’ co-founder and former Managing Editor, Graham Hand, has died aged 66. Graham was a legendary figure in the finance industry and here are three tributes to him.

The nuts and bolts of family trusts

There are well over 800,000 family trusts in Australia, controlling more than $3 trillion of assets. Here's a guide on whether a family trust may have a place in your individual investment strategy.

Welcome to Firstlinks Edition 583 with weekend update

Investing guru Howard Marks says he had two epiphanies while visiting Australia recently: the two major asset classes aren’t what you think they are, and one key decision matters above all else when building portfolios.

  • 24 October 2024

Warren Buffett is preparing for a bear market. Should you?

Berkshire Hathaway’s third quarter earnings update reveals Buffett is selling stocks and building record cash reserves. Here’s a look at his track record in calling market tops and whether you should follow his lead and dial down risk.

Preserving wealth through generations is hard

How have so many wealthy families through history managed to squander their fortunes? This looks at the lessons from these families and offers several solutions to making and keeping money over the long-term.

A big win for bank customers against scammers

A recent ruling from The Australian Financial Complaints Authority may herald a new era for financial scams. For the first time, a bank is being forced to reimburse a customer for the amount they were scammed.

Latest Updates

Shares

Looking beyond banks for dividend income

The Big Four banks have had an extraordinary run and it’s left income investors with a conundrum: to stick with them even though they now offer relatively low dividend yields and limited growth prospects or to look elsewhere.

Exchange traded products

AFIC on its record discount, passive investing and pricey stocks

A triple headwind has seen Australia's biggest LIC swing to a 10% discount and scuppered its relative performance. Management was bullish in an interview with Firstlinks, but is the discount ever likely to close?

Superannuation

Hidden fees are a super problem

Most Australians don’t realise they are being charged up to six different types of fees on their superannuation. These fees can be opaque and hard to compare across different funds and investment options.

Shares

ASX large cap outlook for 2025

Economic growth in Australia looks to have bottomed, which means it makes sense to selectively add to cyclical exposures on the ASX in addition to key thematics like decarbonisation and technological change.

Property

Taking advantage of the property cycle

Understanding the property cycle can be a useful tool to make informed decisions and stay focused on long-term goals. This looks at where we are in the commercial property cycle and the potential opportunities for investors.

Investment strategies

Is this bedrock of financial theory a mirage?

The concept of an 'equity risk premium' has driven asset allocation decisions for decades. A revamped study suggests it was a relatively short-lived phenomenon rather than the mainstay many thought.

Vale Graham Hand

It’s with heavy hearts that we announce Firstlinks’ co-founder and former Managing Editor, Graham Hand, has died aged 66. Graham was a legendary figure in the finance industry and here are three tributes to him.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.