Why US asset managers should turn to Luxembourg

In recent years, Luxembourg has emerged as a pivotal hub for the asset management industry, particularly for US-based asset managers seeking to expand their reach into European and global markets. EY partner Kyle Frasca explains why.

As of December 2024, there were €1,165 billion in net assets of US initiator origin, reflecting a steady growth over the last 10 years in the Grand Duchy. These figures do not even reflect the full extent of US managers’ footprint in Luxembourg as they exclude private vehicles, which have significantly contributed to the expansion of US assets in Luxembourg.

Asset managers seeking to expand their footprint in Europe and target new investor bases can look towards Luxembourg for its proven track record, wide array of product types, and extensive network of service providers. However, US asset managers need to be aware of the specific set of challenges this entails due the fundamental differences between the two markets.

In their market approach, we have often seen that US managers seeking to expand their operations face challenges in understanding and adapting to the Luxembourg regulatory and operating environment.

Regulation – prevent versus detect

Luxembourg and the US have divergent approaches to the regulation of private investment funds. In Luxembourg, regulation imposes greater oversight via required stakeholders in private markets under the Alternative Investment Fund Manager Directive (AIFMD). These stakeholders are subject to direct oversight from the regulator.

This contrasts with the US, where commercial, rather than legal, factors drive similar operating decisions around service provider appointments and general operating protocols. While this is less regulated on the front-end, adherence to the rules can be driven by both commercial reasons, as well as by higher risks from litigation.

The service provider environment is robust, but vast

Luxembourg service providers offer a wide range of expertise, a multilingual and specialized workforce, and cater to the global market. This brings great opportunity, but also highlights the significantly fragmented market being served, versus the homogeneity of the US market.

US managers should consider the current client base of service providers and consider whether their product or service offerings, culture, and general track record indicate alignment with their own. A historically successful service provider does not always correlate to a compatible business partner.

Work with advisors that know Luxembourg

Distributing private funds in the EU – specifically in Luxembourg – is very different from comparable distribution practices in the US. The regulatory framework and local market are dynamic, and navigating those complexities and relevant requirements should be done with care.

While US managers may often leverage US or UK based advisors out of familiarity, the reality is that having appropriate and up-to-date local knowledge is key to success.

Having the right partner who knows the local market and competent authorities can enable US managers to gain a competitive advantage and effectively succeed in their expansion.

Conclusion

Luxembourg presents strong opportunities for US asset managers, but the regulatory and operational landscape differs from the United States.

To succeed, US asset funds must adapt to local requirements, work with trusted advisors, and choose compatible service providers. Understanding these nuances is key to achieving success in the European market.