Happy Birthday UCITS, Happy Birthday ALFI!

25 years ago, in March 1988, Luxembourg was the first country to transpose the European UCITS Directive into national law.  Since then, the country has held a leading position in Europe for the domiciliation, the administration and the distribution of cross-border investment funds.  To support this development, ALFI - the Association of the Luxembourg Investment Fund Industry - was created in the same year. 
 
Happy birthday UCITS, happy birthday ALFI!  What an extraordinary idea the European Union had at that time, when it introduced the concept of harmonised European retail funds, the so-called ‘UCITS’(1).  The distinctive feature of that legislation permitted a UCITS fund authorised in one member state to benefit of a ‘passport’ and to be sold freely throughout all other member states.  This extraordinary concept took the vision of an integrated European market for financial services one significant step closer to reality. 
 
Since then, UCITS have been immensely successful: today, accounting for over 70% of assets under management, they are by far the most common investment funds in Europe.  Even beyond European borders, UCITS are largely recognised as market-efficient quality products with intrinsic investor protection criteria of the highest standards.  Since the creation of UCITS, the European world of investment funds has therefore not only experienced impressive growth, but it has also reached an unprecedented level of internationalisation.  UCITS have gone truly global, being offered in more than 70 countries around the world. 
 
The international dimension of the UCITS framework has also been a key factor in the development of the Luxembourg investment fund industry.  Indeed, Luxembourg’s market has never been the small local market, but rather the European or even the global markets.  Likewise, the Luxembourg financial centre has always been very internationally-oriented.  It is therefore not surprising that Luxembourg chose to promptly implement the UCITS Directive and established itself as a domicile of choice for cross-border investment funds.  The know-how that the financial centre has subsequently built up in the administration, domiciliation and distribution of cross-border investment funds remains unequalled.  As ALFI, we are particularly proud of the ‘made in Luxembourg’ brand, which countless UCITS funds have carried around the world for all these years.
 
At the same time, while UCITS will continue to boost the competitiveness of the European investment fund industry, the recent AIFM(2) Directive has the potential to also significantly foster the development of alternative investment funds.  Alternative investment funds like real estate, hedge and private equity funds, have traditionally have been less common in the European market.  The AIFM Directive however, which creates the firstregulated alternative investment fund market in the world, represents a welcome opportunity for Europe to create a brand in the ‘alternatives sphere’ well.  With the introduction of the passport for AIFM, the European market for alternatives is now opening up its full potential to EU and non EU actors.  ALFI has been looking forward to this for a while now.  The Luxembourg fund distribution platform, which has become an inevitable hub for fund managers around the world, will surely be of major benefit in this context.  In order to exploit the full potential of the Directive, the draft law transposing the Directive into Luxembourg law, furthermore foresees a number of provisions to facilitate and frame the development of this ascending industry as a whole. 
 
 
Besides these two pillars of the European investment funds world - UCITS and AIF - a third pillar focusing on responsible investing, including the environment, microfinance and social businesses, is emerging.  Within 25 years from now, the European investment fund world is thus likely to be the most complete and diversified… and hopefully just as successful in all three areas as it has come to be for UCITS.