PwC Luxembourg has published its 2023 Observatory for Management Companies (ManCos), an in-depth analysis of the world of management companies aimed at providing an overall view of where the industry is heading.
This year, PwC reported a net decrease of four ManCos in comparison to last year. This corresponds with last year’s trend, mainly driven by the decrease of UCITS licences, and is explained (according to PwC) by market consolidation, pressure on cost and regulatory weight. Nevertheless, the industry remained dynamic, with eleven new ManCos set up since 2022. The large majority of these new entrants are Alternative Investment Fund Managers (AIFM).
The Assets under management (AuM) on regulated products have reportedly decreased significantly. In the context of the war between Ukraine and Russia, which led to an increase of interest rates, inflation and overall decrease of the stock market, PwC found that 11% of the decrease of these AuM were related to the stock market evolution and only 3% to net sales. AIFs have also shown a 25% total increase. According to PwC, this increase confirms the growing leadership of Luxembourg in the real assets business consistent with the increase of the number of AIFM in the Grand Duchy.
Despite the present uncertain environment, ManCos continued to recruit, with an increase of 5% compared to last year and 40% in five years.
Bertrand Jaboulay, Partner and Management Company Leader at PwC Luxembourg, said: “The results of the 2023 Observatory for Management Companies confirm the adaptability and resilience of management companies in a complex economic environment. The continuous growth of the real assets products attracting new alternative players confirms the growing leadership of Luxembourg in this sector.”
54% of the AuM managed by ManCos were either Article 8 or Article 9 as of 31 December 2022. Compared to last year, ManCos targeted 45% for the end of 2022. Moreover, the responding ManCos believed that 59% of their AuM would be considered sustainable investment compliant within the next twelve months and 64% within the next 24 months.
Luxembourg ManCos had a governance framework with an average of four to five directors per ManCo and an average of seven board meetings per year. The gender equality rate gap decreased, with 3% more women than last year. 23% ManCos had a Conducting Officer in charge of tax matters, while 7% intended to create such a function. Likewise, 19% ManCos had a Conducting Officer in charge of ESG/sustainable finance, with 15% intending to create such a role. In this regard, the Luxembourg PwC Group determined three functions on average per Conducting Officer within ManCos.
Pierre-Marie Bochereau, Director, Management Company Coordinator at PwC Luxembourg, said: “We have observed that management companies are redesigning their operating models with either insourcing some activities or outsourcing some of them. The past two years have set the record straight: pressure on fees, scarcity of talent and increased regulatory environment urge players to make choices. Outsourcing of non-core functions has been used for several years; but we also started to observe asset managers or ManCos increasingly delegating the management of certain asset classes.”
57% of ManCos experienced a revenue increase in 2022, reportedly mainly due to investment performance and business opportunities. Simultaneously, the majority of ManCos experienced a cost increase in the past year, notably related to regulatory and staff costs.
PwC Luxembourg Management Company Leader Jaboulay pointed out: “Digitalisation and technology remain on the top of the priority of the management companies. Currently most […] continue to leverage on internal solutions to improve their process, nevertheless ESG data and oversight of delegated functions are considered as the top priorities in terms of need of transformation.”
90% of respondents named Luxembourg’s strong position as an attractive fund hub a main reason to set up or keep a ManCo in the country. Luxembourg’s ecosystem, with its proximity to stakeholders and regulators, its political stability, the business environment etc., was the second most important reason to set up or keep a ManCo in Luxembourg, according to 79% of respondents.
Main threats to Luxembourg’s current ManCo model were the increase of business cost (cited by 91% of respondents), regulatory burdens/challenges (84%) and the lack of skilled workforce/resource constraints (75%).
On a long-term basis, ManCos found 69% of respondents supporting the claim that the industry will mainly evolve into a consolidation of the market, with 66% agreeing that Luxembourg will tend to be a European Hub for ManCos business.
ESG/sustainable finance, alternative investments and digital/technology, among others, were named key trends for Luxembourg ManCos, having an important potential impact.
The eighth edition of the Management Company Observatory Barometer is now available on the PwC Luxembourg website: https://www.pwc.lu/en/asset-management/management-company.html.