Insight / 21 September 2020
Building from the Covid experience
The Covid-19 experience has shown that Luxembourg and the wider European funds industry can be resilient and adaptable in the face of major market disruption but has also underlined that there is significant scope for evolution, according to speakers in a recent webinar hosted by Crestbridge and Hogan Lovells.
In the webinar, Daniela Klasen-Martin, Managing Director of Crestbridge in Luxembourg, and Simon Recher, Associate in Hogan Lovells’ Luxembourg office, offered their experiences of working through pandemic-driven restrictions and pointed to some key learning points for European funds practitioners.
“A number of measures were put in place by the Luxembourg authorities in response to the disruption,” explained Simon. “Those included tax exemptions, legislative changes, flexibility on capital requirements, extended reporting deadlines and measures to support remote working”.
“Overall, those measures have been successful – Fitch has just awarded Luxembourg a AAA rating, for instance, which is a good indication.”
Daniela agreed, suggesting that those firms that had adapted quickly would benefit from a competitive advantage as the world looks to emerge into a very different global funds environment.
“Covid has certainly been an accelerator in the digital sphere, for example,” she said. “Firms are increasingly looking at operating in a paperless world as a result of this experience by adopting new technologies such as DocuSign. However, the key will be in how firms can balance respecting regulatory requirements and delivering seamless client service whilst introducing new tools and applications.”
Pointing to the challenge of people management in a ‘working from home’ environment, she added:
“Remote working has been by and large well managed, and those companies that have been able to support their people best and that have a strong corporate culture will undoubtedly be the most successful in the long-run, with remote working likely to remain as part of ongoing business models.”
Looking to the future, both Simon and Daniela saw specific opportunities for investors, managers and the industry more widely off the back of the pandemic:
“I see a number of marketing and other opportunities for managers,” said Simon. “For instance, the low interest rate environment is convenient in terms of fund financing and eliminating certain structural risks, and that could have a positive effect for the market.
“In terms of ESG too, there’s been a big rise in appetite for ESG funds and other products and the expectation is for more launches in the coming months. This was a trend we were already seeing, but Covid has undoubtedly amplified the need to address and enhance the proposition in this area, and potentially open it up to the retail world through UCITS.”
Daniela suggested she also anticipated an uptick in activity in certain areas over the coming months:
“We’re now looking at a very busy period in both new and existing funds, particularly in the venture capital and private equity space, as investors are making to most of an initial decline in asset valuations. In particular, we can expect a lot of activity in health care and technology ventures for obvious reasons, as well as gaming, e-commerce and agritech.”
“The coming months will be all about active management, rather than tracking indices,” added Simon.
Overall, the speakers agreed that the pandemic had disrupted the European funds landscape in some ways, but it had also amplified and accelerated other trends that were already under way, with both Daniela and Simon emphasising that the regulatory landscape would undoubtedly be affected in the long-term by the pandemic.
“On substance, the disruption caused by working from home combined with the rapid adoption of digital solutions could provide a helpful driver in evolving definitions under substance rules, so they are more appropriate for a remote working environment,” suggested Daniela.
Meanwhile, both were also keen to stress that firms and the industry more widely should see this as an opportunity to evolve and be ambitious.
“Now is the time for firms, and the CSSF, to be brainstorming and looking to move forward on new ideas,” said Simon. “Such as regulatory sandboxes or looking at opportunities beyond the more established private equity and real estate alternative asset classes.”
If you have missed this webinar you can listen to it here.