PwC Report: Luxembourg ManCo Market Is European Leader with €5trn in 2023

On Thursday 23 May 2024, PwC Luxembourg released its 2024 Barometer for he previous year’s “Observatory for Management Companies”, marking the ninth edition of this survey.

This publication explores the complex dynamics and evolving trends within the sector, providing insights for industry stakeholders. Aiming to provide an in-depth analysis of Luxembourg's Management Companies (ManCos) market, this year's barometer offers a comprehensive overview encompassing UCITS ManCos, Alternative Investment Fund Managers (AIFMs), and "Super ManCos."

The Barometer draws from a sample of 91 participants, representing 86% of regulated Assets under Management (AuM) and 50% of the ManCos' workforce in Luxembourg. This diverse sample encompasses a variety of ManCos, including UCITS ManCos, AIFMs and the notable "Super ManCos", aiming to ensure a representative snapshot of the sector.

The survey reveals a diverse range of ManCos, with origins spanning Asset Managers, fund services providers, privately-owned entities and those affiliated with banking groups, ensuring a comprehensive sectoral overview.

The analysis further breaks down ManCos by their operational focus, with insights into in-house ManCos, mixed ManCos and third-party ManCos, clarifying the varying strategies employed within the market.

Luxembourg stands out as the foremost ManCo market in Europe, boasting over €5 trillion in Assets under Management (AuM) in 2023, accounting for 30% of the continent's total AuM. In comparison, Ireland holds 23%, Germany 15% and France 13% of European Union AuM, highlighting Luxembourg's dominant position in the region.

The 20 top ManCos in Luxembourg collectively manage an average of €150 billion in AuM, marking a 4% increase compared to the previous year. Among them, the top three ManCos manage more than €1 trillion AuM as of December 2023, reflecting an impressive 18% growth compared to the previous year.

The report delves into evolving market dynamics, including the declining total number of ManCos. The global geopolitical situation generating a difficult financial and economic situation combined with the continuous regulatory and cost pressure resulted in an acceleration in the consolidation of the market, PwC noted. Even if a small decrease in the number of ManCos was recorded, the market remains dynamic with all the new players who applied for an AIFM licence. It demonstrated the shift operated by the industry in Luxembourg with an increasingly real asset domicile on top of the UCITS existing brand. The growth in employment, with over 7,700 employees in the sector, underscores the importance of substance and governance within the Luxembourg ManCos sector.

Over the past few years, PwC noted they have observed a continuous increase in the AuM managed by third-party ManCos, with a proportion managed by those ManCos on total AuM rising from 6% in 2018 to 18% in 2023. The third-party ManCo sector has also remained dynamic in terms of mergers and acquisitions transactions and is used by every kind of asset manager.

A comprehensive examination of AuM trends revealed a resilient market recovery in 2023, primarily driven by Alternative Investments. Additionally, stable UCITS performance and robust growth in alternative investments highlight Luxembourg's prowess as a leading hub for fund management.

The report underscored the increasing integration of Environmental, Social and Governance (ESG) criteria into investment decisions, reflecting a broader industry trend towards sustainability-driven strategies, PwC added.

According to PwC, streamlining internal processes, digitalisation and automation remained top priorities for ManCos, amid increasing cost and margin pressures. Third-party ManCos, in particular, are urged to diversify revenue streams and implement stringent client acceptance processes to navigate these challenges successfully.

Bertrand Jaboulay, AWM Clients and Markets Leader and PwC Company Leader said: “The ManCo market showed a nice bounce in 2023 with a significant increase of the AuM managed by ManCos compared to last year (+5.5%). This growth is mainly (but not only) explained by the new real assets AuM confirming Luxembourg as the domicile of choice for AIFMs and real assets products. In this context, even if we have seen a number of transactions, the sector remains very dynamic with the entrance of eight new AIFMs in Luxembourg.”

Pierre-Marie Bochereau, Audit Director at PwC said: “The regulatory landscape remains on top of ManCos' agenda, with regulations and cost pressure catalysing market consolidation. As ManCos grapple with these complexities, the shift towards specialised third-party ManCos becomes increasingly pronounced. This year’s responses underscore a growing preference for this model, which not only provides regulatory expertise but also operational efficiencies that are critical in today’s fast-paced market environment.”
 
Laurent Butticè, Audit Partner at PwC, concluded: “Luxembourg’s ManCos continue to demonstrate strong resilience, especially in a year marked by macroeconomic volatility. Luxembourg’s stability and expertise have remained key draws for the ManCo sector, reinforcing Luxembourg’s position as the funds’ hub with 30% of the European Union total net assets of regulated funds domiciled in the country. ManCos have seen a notable increase in non-regulated assets, crossing €1 trillion and confirming Luxembourg as the domicile of choice for regulated and unregulated products and for their AIFM.”

Looking to the future, the barometer anticipates continued market consolidation as ManCos seek strategic responses to expanding market shares and reducing competition, PwC added.

More information is available at the 2024 Barometer via the following link: https://www.pwc.lu/en/asset-management/management-company.html.