A study by the same people who released the controversial (mostly in Canada) research paper, Mutual Fund Fees Around The World, shows that in 2001 the second largest mutual fund industry (ranked by total assets) was Luxembourg.
Yep, Luxembourg. At the time, it held just under US$800 billion in assets in mutual funds domiciled inside the country (Canada has about CAD$600 billion in long term funds right now). As of today, there are less than 500,000 people living in Luxembourg (according to Wolfram Alpha). Assuming the population was the same back in 2001, it would imply that every person (including babies) had an average of US$1.6 million dollars in mutual funds. Well, that doesn’t make any sense… so what gives?
Luxembourg qualifies as an offshore environment. I know what you’re thinking right now – isn’t Luxembourg landlocked? How can it be an “offshore” environment. Well, the answer is that the term “offshore” doesn’t actually mean that the locale needs to have a coast, or be an island at all. It’s a slang term for an environment that sells or provides financial accounts or investment funds to another country.
The reason that Luxembourg has such a large fund industry is, according to the study’s authors, “tiny Luxembourg grew to be a European mutual fund hub fueled by favorable bank secrecy and tax laws as well as its central location.” So essentially, a lot of people from other countries were/are investing in Luxembourg domiciled funds.
NOTE: I’m looking into this assertion more to see how valid it is – see the comments section for more information…
Luxembourg also has a large fleet of ships…
More fascinating trivia: Luxembourg has the largest shipping register of all landlocked countries in the world. The reason for this is that shipping companies choose to register here because of a favourable tax regime.
…to be continued!