Ireland's competitive tax policies and workforce have attracted numerous fund promoters, propelling the country to become the EU's fastest-growing and second-largest fund domicile. Despite these impressive achievements, Ireland faces challenges in overtaking Luxembourg as the leading destination for funds.
Healthy competition between Ireland and Luxembourg has fuelled significant market growth and bolstered the EU's dominance in cross-border fund sales worldwide. However, investors prioritise returns and choose domiciles that offer optimal conditions, leading to intense competition for assets.
Let's explore five areas where Luxembourg outperforms Ireland:
1. Quality of Life:
Residents of Luxembourg enjoy high salaries, free transportation, efficient healthcare, low crime levels, and a robust social security system, among other benefits. While Ireland also ranks highly in terms of quality of life, it grapples with issues such as high crime rates and living costs.
2. Location & Culture:
Centrally located and easily accessible, Luxembourg benefits from privileged access to European investors and shares cultural and business customs with them. In contrast, Ireland, situated on the periphery of Europe, operates under a common law system rather than a civil law one.
3. Economic & political landscape:
As a founding member of the EU, Luxembourg boasts one of the highest GDPs per capita, a stable government, and a AAA credit rating. In contrast, Ireland has a lower credit rating and a more diverse political landscape, often resulting in coalition governments.
4. Specialisation:
Due to its reliance on the financial sector for job creation and tax revenue, Luxembourg has developed a comprehensive "fund toolbox," comprising a wide range of laws, regulations, and frameworks that make it an attractive fund domicile.
Being the first to adopt the Ucits directive has enabled Luxembourg to dominate the mutual fund industry, and subsequently capture a significant share of the AIF industry. In contrast, Ireland's economy is more diversified, with less dependence on the financial sector.
5. Languages & distribution:
With over 50% of its population comprising foreign residents fluent in English, French, Italian or German, Luxembourg facilitates the distribution of funds within the EU and globally. In contrast, the majority of Ireland's residents predominantly speak English.
Ultimately, Luxembourg, with its small yet attractive profile, possesses all the necessary attributes to serve the global fund industry. Its homogeneous population, specialization in funds, and ability to attract talent should enable it to maintain or even expand its market share.
However, Ireland has made significant strides in its fund industry, and its economy ranks among the best globally. Luxembourg could learn from Ireland's success and implement similar measures to remain a formidable competitor.
Gregory Kennedy is a columnist for Investment Officer Luxembourg. His columns appear every other week. He also works as a business development manager at Finsoft.lu
