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Second Largest Mutual Fund Industry by Country: Luxembourg?

 

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.

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?

Offshore Haven?

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!

Related posts:

  1. Mutual Fund Corporations versus Mutual Fund Trusts
  2. What is a Mutual Fund? A basic understanding…
  3. Make sure to track when mutual fund managers move

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About Preet

Preet Banerjee is a Canadian personal finance commentator. He is a television host for The Oprah Winfrey Network, a Money Expert for The W Network, a personal finance columnist for The Globe and Mail, and a regular panellist on CBC's The National with Peter Mansbridge. He also appears frequently as a guest commentator on a variety of other programs and media.

Comments

  1. Jean-Jacques Picard says:

    It is true that Luxembourg is the world's second largest investment fund centre after the US, with slightly more than 2,000 bn euros of assets under management at the close of April 2010.
    BUT: This is neither due to tax advantages (the tax regime applying to investments in Luxembourg fund is that of the investor's country of residence) nor to banking secrecy (foreigners investing in Luxembourg domiciled funds do it via their bank, the fund shares are kept in the investor's securities account at his bank, so here again the regime of his country of domicile applies). The success of Luxembourg as an investment fund centre is due to the fact that it was the first EU member state to implement the first EU investment funds directive (“UCITS I”) and to offer the so-called European passport, allowing funds complying with the EU regulation to be distributed all over the European Union. This motivated many US and Swiss fund promoters to use Luxembourg as their entrance door to the European market. Luxembourg's leading position as a fund centre is due to European regulation – which also means that Luxembourg is far from being an offshore centre.
    Usefull links: http://www.alfi.lu ; http://www.lff.lu ; http://www.cssf.lu

  2. Preet says:

    Now that is some interesting information Jean-Jacques – I wonder why/how this information does not show up in the research paper's discussion…

    http://ssrn.com/abstract=573503

  3. Jean-Jacques Picard says:

    Good question. I don't know the content of the study you mentioned: When following the link you gave, I notice that this study dates back to January 2004. Today, Luxembourg's position as the world's leading platform for cross-border fund distribution (http://www.pwc.com/lu/en/fund-distribution/post…) should be better known.