Page 1



CBP's Hoffmann banks on growth

FINANCE INTERVIEW | Marc Hoffmann, CEO - Compagnie de Banque Privée (CBP)






Banque Centrale



Re-invent the business

The Cook Book

The new Euro note





// Vers un audit interne personnalisé et performant PKF ABAX Audit propose des solutions performantes en audit interne et organisationnel pour répondre aux besoins de toutes les entreprises, de la PME à la multinationale. Les missions d’audit interne peuvent se concentrer sur un problème spécifique, tel que l’analyse d’un processus de travail ou l’étude du système informatique. Il se conclut par un rapport détaillé s’accompagnant de recommandations et d’une réflexion plus économique des activités et processus.

Pour de plus amples informations, n’hésitez pas à contacter nos associés: Tom Pfeiffer // Responsable Audit // Réviseur d’entreprises agréé Luc Brucher // Réviseur d’entreprises agréé PKF ABAX Audit // 7a, rue Thomas Edison // L-1445 Luxembourg-Strassen

PKF ABAX Audit puise sa force dans le groupe PKF International, l’un des dix premiers réseaux de cabinets de conseil indépendants au monde, qui compte 440 cabinets dans près de 125 pays. Un service à forte valeur ajoutée: Prestations personnalisées Proximité et disponibilité Analyse et service sur mesure Réseau international fort

. . . .

The Future of Finance in a Nation As Luxembourg is on the way out of the financial crisis, the perception that things will continue to change is all-around amongst the financial service industry. Challenges are multiple. They start from ensuring that Government revenue will not only continue to grow, but will grow in a way that ensures sustainability of an economic and social model that Luxembourg promotes in the region and in Europe. 


29, rue Notre-Dame L-2240 Luxembourg Grand-Duché de Luxembourg T. +352 26 10 86 26 F. +352 26 10 86 27 E. Internet: Eric Busch Publisher Raphaël Henry Journalist M. +352 691 99 11 57 Florence Thibaut Journalist M. +352 691 99 78 87

Looking more closely at how these revenues are generated, there appears to be a huge building site, where certainties of the past are being taken down and uncertainties of the future are being addressed. UCITS IV has been voted in parliament and ready for implementation, the AIFMD is likely to follow suit, OECD compliant Tax Treaties have been signed and require implementation and Luxembourg agreed with its European neighbours on the basis for exchange of information for tax purposes. However, the challenge for Luxembourg is to become daring again, after 30 years of not needing to be. While Luxembourg was quick to address some of the issues, it has however omitted to engage into a number of reforms that need to be tackled to secure the sustainability of a forward looking and landlocked Financial Centre in Europe for a truly global business., While Government officials and Finance professionals engaged into regulatory updates and economic missions to promote Luxembourg as a place to do business, many avenues still remain to be explored:

Freelance journalists -Conor Sweeney -Brian Power -Delphine Reuter

- The tabbing of the Far East financial and capital markets is recognized, but still left to a somewhat opportunistic approach. The concertation, communication as well possibly the definition of a focus towards that part of the world is left to individual players.

Émilie Mounier Sales Manager M. +352 691 99 11 56

- The skills and knowledge revolution needs to be pushed on. Existing knowhow needs to be supplemented to reflect the forthcoming business orientations towards high added value services, such as Tax Planning, Corporate Finance, Venture Capital, Estate Planning, Islamic Finance possibly in partnership with Far Eastern expertise. These new skills and knowledge openings need to be reflected in the Private Banking offering, if Luxembourg wants to remain an alternative to London, Switzerland and Singapore.

Isabelle Libouton Project Manager M. +352 661 50 36 26 Alexandre Trân Project Manager M. +352 661 16 44 70 Photography Sébastien Héraud Photos Finance Nation

- F inancial business by nature is cross border and requires skill-sets and decision making that support the cross border model. Decision making - in order to be dynamic - needs to be close to where the action lies, while taking account the global economic and financial elements. This is an essential ingredient in sound strategy execution: it helps to link local decision makers to the benefits but also the unexpected results from decisions.

Layout Piranha et Petits Poissons Rouges Subscription Luxembourg 45,- € - Europe 55,- €

-L  uxembourg’s judiciary needs to reflect the importance of the Financial Centre in the country’s economy as well as meeting the aspirations of one of the largest investment Fund Centre in the world. Recently, in the Madoff case, the inclusion, as defendants, of Luxembourg-based custodian banks in the multi-billion USD lawsuits filed in the US, will start the legal fight around adequate control environments and supervisory standards. Luxembourg requires a specialised Chamber that deals with financial crimes in a manner which demonstrate efficiency, know-how and reactivity towards the investment community.

FinanceNation Luxembourg IBAN LU53 0030 7526 7288 1000 BIC BGL: BGLLLULL TVA LU 19730379 RC Luxembourg B 95210 Maison d’éditions - Autorisation d’établissement N° 102739 © Toute reproduction, même partielle, est soumise à l’approbation écrite préalable de l’éditeur. Tous droits réservés.

The Editorial Team

IT Hosting and Managed Services – SaaS Solutions Flexible solutions, tailored to your needs. Relationship management built on deeper understanding. Service excellence that you can take for granted. Clearstream Services. Right here, where you need us. For more information please call +352-243-32434 or email


Global news 16 - Economy - Why Europe needs an independent fiscal authority 19 - Economy - News 20 - Outlook - Perspectives: shares and equities are back 22 - Funds - Towards a new investment management (world) orderdrivers wanted!

FINANCE INTERVIEW Marc Hoffmann, CEO Compagnie de Banque Privée


24 - Reinsurance - The attraction of Luxembourg for reinsurance 28 - Insurance - Prescription for Solvency II: Reach Compliance Now, Reap Benefits Later 30 - Private Banking - Une journée pour réaffirmer la position du Luxembourg 32 - Audit - Financial auditors on the move?

Industries 36 - Venture Capital - The family of Mangrove 38 - Funds - BBH: Remaining a prime mover 40 - Family Office - The new deal 42 - F amily Office - F  inancial Centre: towards a global and more professional philanthropy 44 - Economy - News 45 - Industries - News 46 - Services - PERE drives new corporate or fund vehicles 48 - Industries - News 50 - Regulation - I ASB completes Phase 1 of IFRS 9: Financial Instruments — Classification and Measurement 52 - Space & Aviation - The Aviation and Space Industry in Luxembourg 54 - Industries - Depositaries facing new challenges

Nation 58 - Talent - The Luxembourg talent equation 60 - Technology - Les PSF de support, racines de la finance ©

62 - Technology - Que vaut mon IT ? 64 - Promotion - Luxembourg for Finance version 2.0 66 - Technology - ABN AMRO Luxembourg to develop Independent Asset Managers market







Marc Hoffmann warns of banking challenges, Europe’s future and the risk from market bubbles But the head of the merging CBP bank remains optimistic about the growth prospects for his enlarged group

Some clients with the Luxembourg private bank CBP believe the current economic outlook remains ‘scary’, CBP’s Chief Executive Marc Hoffmann told Finance Nation 2.0 in an exclusive interview. Marc Hoffmann, who established Luxembourg’s first new bank in decades just months before the 2008 banking crisis, believes many asset classes are now close to “bubble explosion time”,



but he’s confident that when the current merger process with the Quilvest group is complete, his enlarged entity will be wellplaced for further expansion. Marc Hoffmann also predicts that the future for the rest of the private banking sector in Luxembourg is unclear and time will run out for some financial institutions unless they change strategies ahead of changes to bank secrecy controls.

To start off, could you tell us about the merger. Is it a positive sign, how do you interpret it for CBP? It’s a major positive sign. This bank has a short history, we were born in Luxembourg, we grew up in Luxembourg with all its shortcomings and all its advantages. At some stage, we felt that if we wanted to be a truly credible player then you can’t be just a niche player in a niche market. Luxembourg is only very sporadically interesting for nonEuropean clients. It’s just a fact of life that Switzerland, or the U.K., are probably much more interesting to an international client base than Luxembourg. To be quite frank, even if now with the merger we gain operations in Switzerland, we have pondered for a very long time, whether it should be London or Switzerland. But London is much more complex with even more competition as a market environment, so we didn’t feel strong enough at this stage to enter it, but I wouldn’t exclude it at a further stage, it may come. For us, the merger is an extremely positive sign, the bank has gone through the first phase of development and now has the means to propel itself to its second stage of development. Why put the headquarters in Luxembourg?


Both shareholders, Quilvest and Compagnie de Banque Privée being Luxemburgish entities, it was obvious to establish the headquarter of the new entity, Quilvest Wealth Management, in Luxembourg, under Luxembourg supervision. We know the regulatory regime in Luxembourg very well which is of course an advantage.




Who comes out on top from the merger? There is a new shareholder base. It sets out that Quilvest will represent two thirds of the shareholding and CBP will represent one third. So, the numbers speak for themselves, Quilvest has a clear majority of the shareholding in the group. Do they come out on top? In some sense yes, but after all, this is a partnership and everyone feels we have structured other agreements, such as shareholder agreements, in such a way that there is a correct balance. What are the advantages of the merger? We did it principally for three reasons. One, it gives us a different geographical footprint. We felt that only being present in one market, Luxembourg, wasn’t good enough. We wanted to be present in Switzerland, we wanted to be present in France, which is something that now works out very well for us. They have a presence in Latin America and we have a presence in Asia, so when we join together, we get a global footprint. Secondly, there is a need to migrate towards the upper echelon of the client base. The client base we have developed so far is very upscale, we have a very high proportion of very high-end clients, which is not what we targeted, but it’s what we have. What they do, Quilvest, is operate a multi-family office and the type of service they can put into the offering is unbelievable compared to what we have. The final argument is size, we are now at 2 billion Euros, which is very nice coming from scratch, but still, we have to grow. The new entity will be 9 billion Euros, which doesn’t make you a giant, but you begin to appear on the radar screen. This is a business where size matters, there are economies of scale and there are lots of financial aspects which kick in once you have a certain size.



Now, if you turn the picture around, why did they do it? They have two entities, in Paris and Switzerland, where they were handling their clients, but they had no clear strategy for growth. They wanted to find growth and we have a proven track record. After all, we’ve been growing since 2007 until now, very strongly and we did it through one of the most difficult periods you could imagine. Looking back, would you ever have recommended someone to open a bank four months before the crisis started? Nevertheless we managed to get through it. They’re looking for a clear strategic focus for growth and they wouldn’t mind being in Luxembourg either. Is there a tax advantage for their Swiss customers from having a Luxembourg base? Not particularly. Will there be a staff relocation or will you maintain the bases in Paris and Zurich? Not really. There will be some exchanges at management level. When the management changes come through, will you continue in your current role? I will be the CEO of the new venture. What would you say is the profile, of the kind of people who are coming to your bank? They’re essentially European, from neighbouring countries... Spain, Italy. What we find today, is that we’re attractive to the entrepreneurial type of clients, who either inherited, or built up businesses and then decided to divest to a large extent or divest partly. Then, they decided to allocate some of the funds to the bank. That’s typically the client that we have. It has a lot of possible spin-offs in terms of asset management,

being the custodian of the assets, or having structuring elements to it. People need advice about how to allocate their wealth, how to do it in the most tax efficient way or the most efficient in terms of estate planning. These type of clients are demanding - they rarely have one aspect to them, they want advice on some or all of these issues. Could you give an example of the kind of sums that customers deposit with you? There is no such thing as an average. What can I say? The largest client of the bank would be in excess of 150m Euro and the smallest would be very small and in between you will have a big spread. What we’ve experienced is that we have been attractive to high end clients, which I think was a surprise. After all, we were a start up bank and I think at the end of the day it may be, because we were a start up bank that we were so attractive. If you look at our growth, the period when we experienced the strongest growth was in the middle of 2008, when we were in the middle of the banking crisis. When people put their money with you, what kind of return do you suggest they can make on it? We don’t suggest too much. We put our emphasis on capital preservation and in terms of returns, most of what we manage is managed very conservatively. We outperform markets, but we can’t extract ourselves from a certain reality, which is that if markets are bad we cannot promise anything we can’t deliver. During the period of the crisis, how have you performed at preserving wealth? I can only imagine we’ve done quite well because we haven’t lost clients. Most clients themselves have points of comparison. Many will have a second or third banking relationship, or will know what’s happening





in the market so they are able to compare. Given that we haven’t had clients leaving us, I can only assume we haven’t been the worst. Since your largest client has in excess of 150 million Euro with the bank, does that leave you very dependant on them? You can only hope that you grow and that by growing, by definition you diminish this risk. You cannot refuse these clients because your exposure to them would be too big! Do you see future growth as organic or will it come through further mergers? I think most of what we’re going to see is organic. In terms of value creation, for shareholders, this is the most interesting way to progress. I wouldn’t exclude, as a matter of principal an acquisition, what we’re doing here is not an acquisition, it’s a merger. I wouldn’t exclude future acquisitions, but the philosophy behind the group is to grow on its own. In terms of service, you mention new services for ultra high worth individuals, like art and private equity? You mention private equity. It is an asset class that traditionally private banks do not offer, but it’s a point of fact that many clients are only interested in private equity. The fact that we’re offering it at the right level is very nice. Some private bankers in Luxembourg are concerned about the future of private banking in Luxembourg, where do you see the industry in five years after the changes to banking secrecy?


It’s probably true that some banks are more at risk than others, it all depends on their customer base, their client nature and probably also to do with the history of the organisation. If I’m a bank and I’ve catered for French residents, or Belgians, or Germans and you had what you called the




‘affluent private banking clients’ coming to Luxembourg, I think you are fully exposed and you have a very serious risk. To a large extent, as we are a new phenomenon, we started operations during the period when the issue of banking secrecy was fully on the table. Given the nature of the clients we have, these clients are way beyond the issue of banking secrecy. Most have already structured themselves adequately, so they don’t fall within the scope of the banking secrecy issue, that’s not their problem. Why is your bank expanding into Singapore, why there and not Hong Kong? First of all, why Asia? It’s refreshing, the Asian economies are booming. By definition, the wealth creation in Asia is going to be superior to Europe. If you look at Europe, we’re finding it very hard to get our feet off the ground, we’re stuck with almost zero growth. So therefore the amount of wealth creation from Asia is going to be big and the requirement for wealth management services is going to be big, there’s no doubt about it. So why Singapore and not Hong Kong? Our choice is Singapore because today, as a private banking hub, it is much more accepted than Hong Kong. Hong Kong on the other hand, takes the lion’s share of the institutional business.

banner_180x25.indd    1

Europeans have a very long experience in this business, so we have a lot to offer. This is true for all foreign banks in private banking in Singapore today. The market is so large, it’s big enough for many more. Why are people in the banking sector attracted to join CBP? People like the model, in opposition to many other things they have experienced. Most people who joined CBP have been with very large banking groups with everything that brings with it. This is a totally different venture, with a different mindset and that’s attractive. Do you have any concerns about the future direction for Europe and the apparent flatline in economic growth? One has to be concerned for Europe right now. Europe is in a confusing stage of its development today. I’m a convinced European and there is no other route for Europe other than further integration. But you find

that there are so many political forces who are either ambiguous about it, or just generally believe it’s not the right way to do it. There’s a lack of momentum to European integration, which is very worrying. The debt crisis shows there is a re-emergence of national interests at the expense of a common position which I think could be dreadful, this is certainly true with Germany and the way it positioned itself in various rescue efforts, be it Greece or Ireland. Generally, France has followed. So, we have a really unconvincing European thrust right now, which also probably has to do with the new generation of European leaders who have less conviction and who are basically playing to their own public opinion. Of course that brings little courage, in terms of bringing things together. Are you concerned that instead of moving towards further integration, Europe could go the other way and could face the disintegration of the Euro? I’m absolutely convinced that at the end of the day, politicians will do everything they can to save the Euro, because if the



Why would an Asian businessman come to a European bank at all?

3/1/2010    5:06:29  PM  JANUARY / FEBRUARY 2011



Euro goes, the Union goes to a large extent. It would be the end of the European Union as we know it today and the outcome from that would not be good for anyone.

And the bubble explosion time, when will that be?

What’s the view of some of your large clients towards the current crisis and market volatility?

How is private banking being treated in Luxembourg?

If you had a 100m Euro of your own and you needed to put it somewhere safe, where would you put it? That’s a tough question. I think there is no single place where I would put it, the question is, if you look at the various asset classes at your disposal, there are not many good choices around right now. Some, like gold, or fixed income, may be at the later stages of a bubble. You’re really entering bubble territory right now, the question is which is the least inflated bubble, so the choices would be very difficult. I think at this stage we do recommend a very conservative approach. We are going back into equity markets, but in a very prudent fashion. If you look at emerging markets, for sure, the risks of a bubble are very high... gold, fixed income, commodities in general, the picture is more or less the same. With equities you run the risk of an economic downturn. So, you can only have a sound and prudent mix and try to shy away from those asset classes where you are getting close to bubble explosion time.

If you think about Luxembourg and the recognition of Luxembourg as a private banking centre from an international perspective, we’ve done a fairly poor job establishing Luxembourg on the world map as a private banking centre. Given this pressure on banking secrecy, we’ve decided instead to communicate about the fund industry. As a consequence, we hardly ever communicate on private banking and that, I think today, is a real drawback. The world doesn’t know we have a private banking industry and I regret this and it will take some time to rectify this. Switzerland remains the preferred choice for international clients it’s not for nothing. Switzerland has done quite well at keeping up its reputation as the private banking centre par excellence. You said Luxembourg Inc. has failed to promote private banking, what policies would you like to see introduced? We should communicate in a much more efficient and pro-active way about private banking in Luxembourg, which we’re not doing. Private banking in Luxembourg is perceived to be in decline, can that be addressed? If you don’t address it, for sure it’s going to be in decline. Each bank will have to adjust its strategy according to its own circumstances, each bank will have to find its own way in this, but my belief is that most banks will have the ability, they will have the time, to readdress their strategic positioning. If they don’t - for sure - time will run out for them. by Conor Sweeney and Raphaël Henry




Scary. You do have clients who are much more scared than I am. You do have people who could imagine a breakup scenario and of course if you are in that Doomsday type of reflection, there are very few safe havens. If you look at the various asset classes that have outperformed during the past year if you look at the price of gold - part of it may be underlying inflation expectation but part of it is also an underlying expression of fear.

If I was divine, I would love to tell you.

Global News > Why Europe needs an independent fiscal authority p.16 >News p.19 > Perspectives: shares and equities are back p.20 >Towards a new investment management (world) order – drivers wanted! p.22 >The attraction of Luxembourg for reinsurance p.24 > Prescription for Solvency II: Reach Compliance Now, Reap Benefits Later p.28 > Une journée pour réaffirmer la position du Luxembourg p.30 > Financial auditors on the move? p.32



Global Economy


Why Europe needs an independent fiscal authority The Euro Zone needs an independent body for fiscal monitoring and coordination among its member states. Such an independent fiscal authority would promote the institutional deepening of the monetary area insofar as a single monetary policy needs to be supported by sound public finances – a lesson we finally should have learned given the strained state budgetary finances nearly everywhere and the sovereign debt crisis in certain countries of the Euro area.

"Despite the single currency and the ECB, national economic policies are insufficiently aligned" When the financial tensions turned into crisis in September 2008 the accumulation of private debt was suddenly stopped. But the problem of excessive debt was not solved. Fiscal rescue packages, the impact of automatic stabilizers and the necessary support for the financial system led to a significant increase in public leverage to levels unprecedented in peacetime. By the end of 2010, macroeconomic policy was in a vastly worse position than three years ago - with lessened scope to manage yet another crisis should it occur. Government debt in the Euro area will have grown by more than 20 percentage points from 2007 to 2011. The equivalent figures for the US and Japan are between 35 and 45 percentage points. Debt-to-GDP ratios are approaching 90 % in Europe, 100 % in the US and 200 % in Japan.



The European experience of rolling over private debt into public debt was certainly similar to other industrialized countries. The important difference, however, was that a weak institutional framework for fiscal discipline at the national and Euro area level covered the growing imbalances. These were mainly driven by the rapid deterioration of the competitive position in some countries, reflected in divergences in unit labour costs and current account positions.

The 2010 wake-up In early 2010, the markets suddenly woke up to reality and, as often happens, overreacted. The slow political reaction forced the ECB into action as a back-stop in an institutional vacuum. During the past three years the ECB

and the Euro system acted very fast, boldly and innovatively to ensure their long term goal of price stability and the functioning of the transmission mechanism of monetary policy - exposing the unfinished work of the institutional set-up of EMU in other areas than safeguarding the single currency. The fundamental point is that, despite the single currency and the ECB, national economic policies are insufficiently aligned. In an improved institutional set-up of the economic and monetary union, crisis prevention will be even more important than crisis management. Well before a fiscal deterioration occurs and requires corrective action, we need to register and heed early signals of nascent macro economic imbalances.

Better monitoring A more effective mechanism for monitoring member states’ budgets is needed with independent assessment to be provided. This would help in the general efforts to improve quality and reliability of statistics and reduce the deadlines of assessment procedures and the time-frame for action to curb unwelcome developments. This would necessarily go hand in hand with a sharper Stability and Growth Pact: • First, macroeconomic surveillance aimed at preventing and correcting macroeconomic imbalances at an early stage ought to be part of a more effective procedure based on clearly defined criteria leading to sanctions of non-compliant Euro members; • Second, more ambitious targets for the reduction of public debt towards the 60% of GDP ceiling are required; • Third, confidence in the sustainability of public finance in the Euro zone is shaken by the political discretion to trigger an excessive deficit procedure. We urgently need a non-protractible procedure leading to automatic steps to sanction those who put the stability and the proper functioning of the Economic and Monetary Union at risk. The answer to profligacy is not more debt at the Euro level, but more discipline at national level enforced by a credible procedure. The legislative proposals of the Commission on the preventive side of the Pact lack ambition in this respect. The suggestions of the Van Rompuy Task Force even fall behind the Commission’s.


My hope is that the European Parliament will be more demanding with this legislative proposal. Although time is short, it is still not too late to undertake the necessary amendments to European governance to ensure that the Euro stays a stable and credible currency. Yves Mersch Yves Mersch, Governor of the Banque Centrale of Luxembourg and Member of the Governing Council of the European Central Bank




AGENCE DE PUBLICITÉ / 00(352) 26 10 81 12 / WWW.PIRANHA.LU


NEWS EConomy

...etc Big Four

KPMG présente ses résultats pour 2010

retrouver. «Nous collaborons avec toutes sortes d’entreprises, nous avons des clients dans les petites entreprises et chez des grandes multinationales, et ce dans différents secteurs. Nous veillons à offrir à nos clients une solution 100% sur mesure pour mieux répondre à leurs besoins et demandes. L’audit interne est très utile en temps de crise, mais aussi pour améliorer ses performances sur une base quotidienne et garantir une activité durable», précise Luc Brucher, Partner chez PKF ABAX Audit.

Karin Riehl, Managing Partner chez KPMG

Malgré une légère baisse des ventes de 5% dans le département Audit, KPMG a réussi à traverser la crise sans diminuer son volume d’activités à Luxembourg. Le département Tax a quant à lui connu une augmentation de ses activités de 6% et le département Advisory de 5%. «Après plusieurs années de croissance (entre 20 et 25% par an entre 2004 et 2008), 2010 a été une année de stabilisation. Nous sommes fiers d’avoir consolidé notre position dans ce contexte de crise. Nous sommes confiants dans les mois à venir et comptons embaucher toute une série de profils pour compéter nos équipes», a expliqué Karin Riehl, Managing Partner chez KPMG.

Luc Brucher, Partner chez PKF ABAX Audit

plusieurs années. La nouvelle publication conçue par PwC Luxembourg propose une comparaison entre la réglementation grand-ducale dite «Luxembourg GAAP» applicable aux établissements de crédit et les IFRS dont l’instauration dans le pays remonte à 2006. Au moment où les normes internationales s'apprêtent à subir de profonds changements, notamment en raison de la crise économique et financière, PwC Luxembourg à décidé de publier une mise à jour de sa brochure «IFRS vs. Luxembourg Banking GAAP: Similarities and Differences», reprenant l’ensemble des modifications récentes et à venir en la matière. Cette brochure est destinée à assister les responsables des fonctions comptables et financières des établissements de crédit luxembourgeois dans la préparation de leurs comptes annuels IFRS. Florence Thibaut


IFRS vs. Luxembourg Banking GAAP


PKF ABAX Audit s’adresse aux PME

PwC Luxembourg vient de publier une nouvelle version de sa brochure comparative et pragmatique de reportings sous le LuxGAAP au regard d’IFRS.

Faisant sa place sur le marché de l’audit luxembourgeois, PKF ABAX Audit propose des services d’audit interne à la carte et en particulier pour les petites et moyennes structures. Évolutions réglementaires et législatives compliquent trop souvent le travail des PME qui ont parfois du mal à s’y

La mondialisation des marchés financiers a logiquement entraîné le besoin d’établir des normes communes. Edictés par l’International Accounting Standards Board (IASB), les standards IFRS ont été adoptés par une centaine de pays et font désormais référence en la matière depuis



global Outlook

Asset management

Perspectives: shares and equities are back The economic uncertainty that European businesses have been familiar with since the start of the crisis did not prevent corporations from enjoying profitability over the past year. Dexia AM and Pictet analyse why companies should take advantage of their financial health to drop their aversion for risk and favour instead the successful comeback of shares and equities in 2011.

State Street Confidence Index The Investor Confidence Index, a State Street monthly analysis of institutional investors’ buying and selling patterns, showed European investors’ appetite for risky markets, including equities, decrease in December. While the index rose globally from 96.4 to 104.4, mirroring Asian and American investors’ confidence, it dropped in

Frédéric Buzaré, Global Head of Fundamental Equity Management at Dexia,

A new sweet spot

Retour en grâce des actions

According to Frédéric Buzaré, Global Head of Fundamental Equity Management at Dexia, 2011 will see the rebirth of equities after the transitional year that was 2010.

Plus que jamais, l’évolution des marchés est dictée par la politique, ce qui rend les prévisions financières hasardeuses. Mais les dernières leçons permettent néanmoins de tirer un enseignement capital : 2011 sera l’année de retour en grâce des actions, estime la banque Pictet.

Europe from 109.8 in November to 99 points. According to Paul O’Connell of State Street Associates, “We went quickly from a regime of concern around the Euro and the liquidity of some of the smaller countries’ debts, to a regime where those concerns were ignored. And now we have come full circle: European investors are back again worrying that high sovereign indebtedness may prove destabilizing for the region.” investorconfidenceindex/



Alexandre Tavazzi, Membre du comité d’investissements de Pictet & Cie

“Investors always have a binary view says Frédéric Buzaré and it appears that this was taken to a new level in 2010 when it comes to equities, where investors were focused on the discrepancy between developed and emerging markets and switched between deflation and high inflation." So what has changed? “Sector correlations, which are at historical highs, should come down and stock-piling will come to the forefront again, explains Buzaré, but there is more to it than that." The overall macroeconomic climate has changed. “Modest economic growth coupled with loose monetary policy will result in a new sweet spot for equities,” continues Buzaré.

Avec des bons des Trésors publics plus incertains que jamais, existe-t-il encore des actifs sans risque et à potentiel élevé ? Dans cet exercice délicat de prévisionniste, Pictet tente l’approche des vraisemblables sous le couvert de scénarios globaux : un premier axe sur une croissance soutenue des pays émergents, Chine en tête, qui résisteraient bien dans un régime de pression inflationniste ; un second, plus neutre, rabaissant la croissance à l’Est par une réévaluation du yuan et d’un mix expansionniste aux

Outlook Global

The deflationary situation noted in Japan some time ago has not been mirrored as “the US has succeeded in stabilising or raising inflation expectations and creating negative real interest rates”. An inflation rate of 2% to 4% has proved historically to be favourable for maximising equity market valuation multiples, while the tightening of corporate belts over the past couple of years has led to a situation where “corporations remain very disciplined and cash-rich and have upheld their profitability quite well during the downturn”. This combination of moderate growth, liquidity and golden interest rates should therefore support equity markets in 2011.

Baffled and bemused Equities are somewhat neglected at the moment. In the US, the equity market was six times bigger than the bond market was a decade ago. Now it is twice the size. Investors have been disappointed by returns and left baffled by the crises in 2002 and 2008 and have of late tended to plough into low-yield government bonds. And yet here is the quandary: corporations are in great shape when it comes to cash reserves. Is risk aversion at play? “The cost of borrowing has never been lower”, explains Buzaré. “And the sound financial structure of corporations will enable them to restructure their financing and create significant value for shareholders through share buybacks or dividend increases. It will also lead to further consolidation in many sectors as we expect that the strongest companies will go on shopping sprees fuelled by cheap debt to make value-creating acquisitions.” Equity markets are likely to remain volatile because of imbalances and risks that are present in the current economic environment and unorthodox approaches to monetary policy can create bubbles as well as buying opportunities. While Europe struggles somewhat, powerful European companies are in rude health and this, coupled with favourable interest rates, is what should support the upswing in equity markets in 2011. Brian Power

Etats-Unis et enfin, une croissance molle en Europe, comme porte de sortie de crise. Quoi qu’il en soit, au moins plusieurs enseignements sont très nettement en train de s’installer. D’une part, les politiques monétaires en dollars ou en euros sont plus diverges que jamais, avec le Trésor de l’Oncle Sam qui a triplé la taille des bilans dans la Fed fin de cet été, alors que la BCE normalise son action à la baisse. Il en résulte deux attitudes contrariées qui répliquent des conditions de marché très différentes, mais qui connaissent néanmoins parfois les mêmes aléas : un taux de chômage élevé et une création d’emplois nouveaux très faible. Or, avec les élections à mi-mandat et le retour des Républicains au premier rang au Congrès, voilà que les entreprises se sentent à nouveau plus en confiance. Les poches remplies de cash, les entreprises améri­ caines sont prêtes à en découdre, et cela se verra dans les mouvements M&A de 2011. En Europe, les entreprises n’investissent plus, et ce sur un constat assez structurel et pas juste un effet cyclique coincé entre les effets post-crise des marchés, crise des bons du Trésor.

L’échéancier européen, couperet des entreprises «Il y a un enjeu majeur en Europe sur les échéanciers de certains États dans leur calendrier de renouvellement des emprunts, dit Alexandre Tavazzi, membre du comité d’investissements de Pictet & Cie. L’Italie doit reconduire 21% de son PIB en nouveaux emprunts en 2011, l’Espagne 14%, la Grèce 22%, le Portugal 18%... La question : à quel prix ces Etats vont-ils reconduire leur dette ? Il s’agit là d’une source importante de tension et qui se propage au secteur bancaire européen où d’aucuns ne peuvent se demander quelle sera la capacité des banques à prêter aux États…» Pour l’économiste, les mouvements sur les pays ne sont pas des spéculations mais bien des inquiétudes fondées, en partie, par les détenteurs de ces bons à récupérer leur argent… Dans tout ce contexte, s’il est bien un des

facteurs imprévisibles, c’est le taux de change des monnaies et particulièrement de l’euro face au dollar. «Nous conseillons de reconduire les investissements dans la monnaie domestique et initiale.» Dans tous les scénarios, il est impossible d’avoir une vision unique. Mais quoi qu’il en soit, si le marché obligataire est encore à recommander en sous-pondération, ce sera de toute façon dans des instruments avec une échéance courte. Les actions des entreprises dans un contexte de crédit normal seront, sans coup férir l’instrument de 2011… Selon le banquier Suisse, le S&P 500 pourrait engranger 14 points en 2011 après sa remontée de 41% de 2010. En Europe, le Stoxx 600 pourrait, après sa relève de 44% en 2010, progresser de 17% de plus. Pictet voit toujours en l’or une matière d’investissement positive, malgré la continuelle envolée des cours. «La Fed a pris la bonne décision à la fin du premier trimestre 2010 en libérant les établissements bancaires des dettes périphériques. Ainsi, la Fed a débloqué tout le système. C’est ce qui ne s’est pas passé en Europe et aujourd’hui, nous devons composer avec 1.600 milliards de dettes obligataires périphériques. Nous pouvons penser que les banques vont prendre des pertes sur ces positions… Cette incertitude bloque tout le secteur. Je pense que la BCE devrait un peu s’américaniser, soutient Alexandre Tavazzi. Il est bon que la BCE combatte l’inflation, mais elle ne débloque en rien le système. Or les PME européennes, omniprésentes, dépendent du crédit bancaire. Nous pouvons parier que cette volatilité du marché est largement due au manque de liquidités qui gèle toute décision.» Raphaël Henry



Global Funds


Towards a new investment management (world) order – drivers wanted! November 11, 2010 will be referred to as Day 1 of the revised pan-European order for Alternative Investment Funds (AIF) and their managers (AIFM). First proposed in April 2009 by the EU Commission in response to the worldwide financial crisis, the Directive seeks to provide a harmonised EU regulatory framework for the supervision and operation of AIFM. While the Directive only aims to regulate AIFM, implications for AIF are numerous and important. Broadly, the Directive will apply to: (i) AIFM established in the EU; and (ii) all other AIFM that manage and/or market AIF in the EU. For purposes of the Directive, ‘AIF’ potentially include hedge funds, private equity funds, real estate funds and all other collective investment undertakings that do not qualify as UCITS funds. Going forward, the EU investment funds landscape will thus be divided into two market segments: ‘UCITS’ and ‘AIF’. While this would have the benefit of simplicity, it is indeed only partly true as the Directive also provides for a residual category comprised of exclusions and exemptions. The new order will thus comprise three segments. The Directive will further phase in an EU passport for the cross-border marketing of AIF to professional investors established in



the EU. Initially, the passport will only be available to EU AIFM of EU AIF and may later be extended to non-EU AIFM and EU AIFM managing non-EU AIF. Luxembourg has been relentless in building up its AIF offering and has become one of the most important real estate and private equity structuring hubs. It is Europe’s most important centre for onshore domiciled hedge funds and funds of hedge funds. When Luxembourg set the course on the alternative asset classes, it built upon the three pillars of its very own investment funds model. Pillar N°1 embodies legal and regulatory structuring flexibility allowing AIFM to implement all (alternative) asset classes and strategies with an unparalleled choice of legal vehicles.

Pillar N°2 represents the backbone of the model and stands for ‘investor’ and ‘investment’ protection. All Luxembourg AIF are subject to authorisation and ongoing prudential supervision. Lastly Pillar N°3 ensures tax neutrality at AIF level. A collective investment vehicle should not be a taxing vehicle, thereby ensuring that investors are treated the same whether they invest directly or indirectly. The AIFM Directive now puts the spotlight on the success of the Luxembourg model. With the Luxembourg AIFM and AIF architecture to be revisited soon in the context of the implementation of the Directive, the choice of the implementing options will determine Luxembourg’s future success.

Let me take a bold side step in order to make my point. If Germany is today’s most prominent car manufacturer, Luxembourg is largely seen as the most prominent funds manufacturer. What ‘Made in Germany’ means to the automotive sector, ‘Made in Luxembourg’ means to the investment funds sector. Cars and funds however have many more things in common: they are special purpose vehicles. Just like cars need drivers, funds need managers. Just like cars are made for transporting passengers and goods, funds are made for transporting investors and investments. Cars come in different forms and are designed for different terrains. Funds are made for different asset classes and investors. Certain cars are reserved for racing drivers. Certain funds are reserved for highly qualified managers and investors. Cars may be the cause of accidents. Funds may also run into difficulties and can create serious damage when they do.

From an EU market perspective, you will need a driver’s licence in all Member States if you wish to drive a car. EU harmonisation has furthermore introduced strict safety standards for cars. While traffic regulations have largely been harmonised, AIF regulations have mostly been a local matter. European road networks are already interconnected and all approved cars can be used on all public and private roads. Traffic regulations exist to protect users. In the European investment management industry, we will find sharp contrasts: regulated and unregulated fund vehicles coexist and managers require a special qualification in some countries but not in others. A few will observe that some of these special fund vehicles are like racing cars. However nobody knows for sure how they get on and off the race track. The point that I wish to make is that while a certain level of harmonisation is welcomed by all market participants, product innovation

must remain possible and over-regulation must be avoided. Imagine a single EU regulator dictating car designs to manufacturers. This is probably where the natural boundaries of fund regulation should lie. A lot of what the Directive will bring is already embedded in the current Luxembourg AIF offering and the Directive will merely transform certain Luxembourg standards into a European standard. Since this will reduce the gap with our competitors, it will be even more important to focus on product design and innovation. Luxembourg has one of the highest number of cars (per capita) in the world. This Directive is however about the AIFM in the first place. We may now post a sign: “Drivers wanted and welcome. Special conditions apply!” To be continued. Gilles Dusemon, Partner, Gilles Dusemon Arendt & Medernach Avocats



Global Reinsurance


The attraction of Luxembourg for reinsurance As early as 1982 Luxembourg realised the potential interest it had in adapting its laws to attract reinsurance captives and thereby building upon the already well developed and successful financial platform it had created for international financial institutions years earlier.

Since then Luxembourg has managed to attract in excess of 260 reinsurance companies The number of captives has remained stable for a number of years and generally we see around 6-8 new formations per annum with an equal number closing down due mainly to mergers and acquisitions. Generally companies from within the EU have domiciled their captives in Luxembourg but it is encouraging to see interest from companies in the US and Latin America. A captive is a wholly owned insurance or reinsurance affiliate belonging to a group that is not normally in the insurance business and which insures or reinsures a part or a whole of the group’s risks. Over the years, Luxembourg has developed a unique and professional infrastructure which is helped by a stable political and economic structure. There are a number of professional captive management companies established here and the auditing and actuarial firms, both large and small, have developed dedicated teams and the necessary expertise to take care of the needs of the captive industry. This is also true for the banks who play their part in advising the captive owners on their investment strategies.



Effects of the crisis on captives For over twenty-five years the Luxembourg reinsurance market has been developing very satisfactorily and clearly today there is still an interest for companies to form captives. The financial crisis that started two years ago has had a mixed effect on captive owners and prospects. Those needing to repatriate cash to their parent companies need to find ways of doing so via their captives and others are using their captives to create capacity to insure risks that are difficult or expensive to insure in the professional markets. Often the captive owner’s balance sheet is healthier than that of the insurer. Here are a few examples of advantages a group can find when forming a captive: Reduced Insurance Costs – Many groups are able to retain larger risks themselves due to their financial strength and by doing so are able to reduce their insurance premiums and in addition save on the administrative costs of insurers. The captive allows the group to define a group risk retention level, at the same time allowing different levels of local deductibles for the different types and sizes of the group subsidiaries.

Improved Cash Flow — The captive can build up reserves to pay future losses and is therefore able to retain the funds itself instead of paying the commercial insurer. Turning insurance from a cost centre to a profit centre — A combination of technical underwriting profit plus investment income will generate additional profits for the group. Flexibility of cover — A captive is able to tailor the cover to the need of the parent company’s risk, when often such cover is not available in the commercial market. Access to the reinsurance market — The use of a captive will allow the group to have a direct access to the reinsurance market. Efficiency in the Group Risk Management Programme — By mutualising risks through the captive the group will be able to standardise its insurance-buying approach globally, distribute cost more efficiently, implement a group-wide programme and improve claims handling, loss control and information gathering.


Reinsurance Global

Reserves As reinsurance companies generally have a much lower spread of risk and therefore a much higher volatility in results, since this activity started in the eighties, the Luxembourg authorities in line with EU Directives have required the establishment of substantial equalization reserves. The aim is to avoid bankruptcies in case of catastrophic loss scenarios. Reinsurance companies in Luxembourg are subject to the country’s normal taxation regulations and therefore, they can benefit from all the Luxembourg tax treaties. The reinsurance industry is in a constant state of evolution and development. Today the captive industry is faced with the Solvency II Directive proposals which are probably the single most important set of regulations to affect captives in Europe since they were commercially used. This is an EU Directive aimed at codifying the regulations for reinsurance companies and its aim is to introduce economic risk based solvency requirements across all the EU member states. Frederick Gabriel, Senior Vice President, Marsh Management Services Luxembourg S.A.

Continued p. 26 >>>



Global Reinsurance

"Luxembourg has always been at the forefront of innovation and will continue to build upon its proven success and lead the way in the captive segment"

The Solvency II effect The Solvency II rules are due to become law in 2013 and for a number of years there have been a number of initiatives and lobbying groups working to get recognition for captives since it is clear that they cannot be considered in the same way as professional reinsurance companies. Indeed Luxembourg has been at the forefront of this lobbying activity with the authorities and many of the principal actors concerned about putting forward consultation papers and arguments in favour of applying some proportionality for captives. There is also an active association of captive owners called the European Captive Insurance and Reinsurance Owners Association (ECIROA), which is based in Luxembourg and which has also been working on behalf of captive owners for the recognition of captive interests before the final directive is published.

Luxembourg on the subject attracted over 650 participants. New more sophisticated forms of risk financing are emerging and this, coupled with the lack of innovation from the Insurance

Indeed the subject of Solvency II is of such interest and so topical to captive owners that a recent captive conference held in




Following the Solvency II timetable we are currently in the process of assessing the mandatory capital requirements for captives under a series of Quantitative Impact Studies (QIS) and we have now reached QIS Number 5. A large number of Luxembourg captives have participated in QIS5 and the results are due in the spring of 2011. These results will help assess and shape the final outcome of the directive.

industry and the interest in finding global solutions in the area of risk management, is making more people look to captives or to developing their existing captives. Frederick Gabriel

Développement au Forfait

Tierce Maintenance Applicative Certifié ISO 9001 : 2000 par

Certificat n°132309

Projet informatique Optimisé SFEIR Benelux, filiale du Groupe SFEIR, conçoit et réalise des projets informatiques de haut niveau. Reconnue pour la qualité de ses services, la maîtrise des nouvelles technologies et sa grande réactivité, SFEIR répond précisément aux besoins spécifiques des entreprises.

Global Insurance

Solvency II

Prescription for Solvency II: Reach Compliance Now, Reap Benefits Later With the January 2013 deadline approaching and insurers evaluating their own progress in complying with the European Union’s Solvency II directive, it is becoming clear that Solvency II represents both a larger challenge – and a larger transformational opportunity – than insurers originally anticipated. To understand insurers’ priorities and the challenges associated with the Solvency II directive, Accenture conducted an in-depth, qualitative survey from May to October, 2010. The survey, which updated a similar initiative conducted in 2007, was designed to determine the industry’s view of the expected effects of Solvency II on insurers, as well as the anticipated benefits.

originally estimated. More than half (57 percent) of insurers said that costs are higher than anticipated, with almost 30 percent saying that the total cost of implementation would be more than 25 million Euros (against 4 percent in 2007), including 7 percent who said the total cost of implementation would be 100 million Euros or more (none in 2007).

Accenture believes that insurers surveyed in 2010 have a much better understanding of the scope, implications and complexity of implementing the three pillars of Solvency II than they had in 2007. The recent global economic crisis has emphasized the importance of risk management. Solvency II is providing impetus for a transformation of insurers’ enterprise-wide decision-making process, with significant implications for their organizational structures, business processes and information technology systems.

The survey indicated that a large majority of insurers (79 percent) intend to use Solvency II as a lever to enhance risk management capabilities. An overwhelming majority (97 percent) of risk executives still expect Solvency II to have a positive impact on the European insurance industry and on their own business. Only 22 percent of respondents said they plan to do enough just to comply with Solvency II’s standard requirements. Although these percentages have little changed since 2007, the 2010 responses reflected a much more in-depth understanding of the scope and direction of Solvency II.

Higher Costs for Implementation Foreseen One of the most significant findings of the survey was that insurers are facing higher costs to implement Solvency II than



Another development since 2007 is the confirmation of insurers’ positive expectations regarding the benefits of Solvency II. In 2007, 58 percent of insurers saw significant benefit from Solvency II in the area

of capital efficiency and management; 27 percent saw moderate benefit; 6 percent saw minor benefit and 9 percent saw no benefit at all. In 2010, there were no negative views among insurers; 61 percent saw significant benefit in capital efficiency and management and the remaining 39 percent saw moderate benefit. In both the life insurance and P&C sectors, insurers expect Solvency II to result in increased capital requirements. Two-thirds of life insurers said that capital requirements will increase, while 17 percent said they expected no change and another 17 percent said that capital requirements will actually decrease. Among P&C insurers, 61 percent said they expect capital requirements to increase, with 26 percent saying they expect no change and 13 percent anticipating decreased capital requirements. Insurers now have a clearer understanding of both Solvency II compliance challenges and the derived benefits. With a little over two years to go before the compliance deadline, Accenture believes that insurers should keep four main principles in mind as they map out the initiatives required under the Solvency II directives.

Insurance Global

"Most insurers believe that Solvency II provides a powerful motivation to undertake necessary transformation in a wide range of areas including capital and operating structure, risk management, investor communications and data management" The time to move forward is now. While there may be adequate time on planning charts to undertake even the more complex projects related to Solvency II, insurers are likely to face shortages of skilled implementation teams as everyone ramps up for completion at once. Competitive bidding for talent is already under way and will increase as deadlines approach. Collaboration with supervisors is essential. Insurers can gain valuable insights into how to complete processes associated with Solvency II by staying in close contact with their regulatory supervisors. Concentrate on compliance and worry about benefits later. Even for insurers who understand the compliance process well, Solvency II remains complex and challenging. Insurers should take a pragmatic approach, addressing requirements under each pillar before trying to reap the benefits from further improvements of their organizational structure or risk management practices. Go step by step. An efficient approach to dealing with Solvency II will address a number of key questions, including determining

which budget is to be used for which initiatives; which projects should be completed in which order; and how much change is feasible within the Solvency II timetable. Solvency II represents a significant challenge for European insurers. Most insurers also believe that Solvency II provides a powerful motivation to undertake necessary transformation in a wide range of areas including capital and operating structure, risk management, investor communications and data management. There are, indeed, transformational opportunities within the overall process of compliance with the Solvency II directives. To obtain the benefits of transformation, however, insurers must first make sure that all the elements for compliance are in place. With a sound structure encompassing data management, financial reporting and disclosure, risk management, operational improvements and capital requirements, insurers will be well-positioned to seek high performance in the post-Solvency II environment. Nathalie Mège, Accenture Management Consulting Lead Luxembourg.

Survey conducted by Eric Jeanne, Insurance Risk Management Lead Gallia (France – Benelux)



Global Private Banking


Une journée pour réaffirmer la position du Luxembourg La 11e édition du Banking Day organisé par PwC a rassemblé près de 200 professionnels de la finance autour de questions liées au futur de l’industrie financière et de ses acteurs. Plusieurs orateurs sont venus partager leur vision de Luxembourg, de son rôle et des opportunités à saisir. Il a notamment été question de l’avenir de la banque privée et de la gestion patrimoniale luxembourgeoises. Tous s’accordent pour dire que le Luxembourg peut rester un des acteurs majeurs en Europe, même si les challenges en cours et à venir sont de taille.

«Il n’y a pas de meilleur timing pour prendre le temps de comprendre ce qu’il est en train de se passer aujourd’hui dans le monde financier et ce qui se passera demain. La crise financière impacte toujours le Luxembourg et les autres pays européens. Le paysage financier est en train de changer, on a notamment pu le voir avec les récentes acquisitions dans le secteur bancaire», explique Rima Adas, Banking Leader chez PwC Luxembourg.

membres de l’Union Européenne à prendre en compte. À titre d’exemple, le Luxembourg a eu un taux de croissance d’environ 3% en 2009, l’Allemagne de 2% et la moyenne européenne est d’1,8% ; ces différences ne devraient pas être sous-estimées dans les finances publiques», a-t-il expliqué. Chaque pays demande des mesures adaptées à son économie et à ses spécificités. Une politique monétaire ou budgétaire globale n’aurait aucun sens.

Un pôle financier incontournable

Luxembourg, de son côté, restera un centre financier, malgré une perte de confiance du grand public vis-à-vis des institutions financières vues comme les grandes responsables de la crise même si le secteur réclame de nouvelles mesures gouvernementales. «L’industrie bancaire et le secteur financier vont rester les secteurs les plus importants de l’économie nationale au

En ouverture de l’évènement, Luc Frieden, Ministre des Finances, a choisi d’évoquer le point de vue du gouvernement, les suites de la crise financière et ses répercussions sur les économies européennes. «Il y a de nombreuses différences entre les pays



moins pendant les dix prochaines années. La prochaine étape va être de se diversifier et de développer de nouveaux services. Même si notre économie reste fragile, les signes de reprise sont encourageants. Il nous faudra avant tout réduire le taux de chômage qui s’élève aujourd’hui à 6%, ce qui est en dessous des 10% de la moyenne européenne, mais reste trop élevé pour notre économie, prévoit Luc Frieden. D’ici fin 2011, une réforme des pensions devra également être réalisée, elle soulagera nos finances publiques sur le long terme. Je suis convaincu que nous allons dans la bonne direction, même si le Grand-Duché reste un des seuls pays européens qui n’est pas encore dans un processus de réduction de son déficit». Réforme des pensions, mesures budgétaires et régime fiscal attractifs… l’année s’annonce chargée pour le Gouvernement.

Private Banking Global

L’industrie bancaire et le secteur financier vont rester les secteurs les plus importants de l’économie nationale au moins pendant les dix prochaines années.

Rima Adas, Banking Leader chez PwC Luxembourg

Didier Mouget, Managing Partner de PwC Luxembourg

Une zone euro fragilisée, mais pas morte Philippe d’Arvisenet, Directeur des études économiques de BNP Paribas, est ensuite revenu sur les grands axes de la crise de la dette au sein de la zone euro, un sujet plus que jamais d’actualité. Comme l’avait déjà mentionné Luc Frieden, même s’il y a encore des risques majeurs qui subsistent, l’euro a joué un rôle stabilisateur durant la crise. Celui-ci a avant tout permis d’éviter une compétition sauvage entre les devises européennes, ce qui a pu être le cas dans le passé. «L’euro ne va pas disparaître, il n’y a pas de retour possible au franc français ou au Deutsche Mark. On devrait se rendre compte des volontés politiques autour de la table. Les différents Ministres des Finances feront tout pour rendre l’euro plus fort. Tout ne sera pas facile, mais on a des solutions

aux différents problèmes», a-t-il poursuivi. «On oublie trop souvent les avantages de la monnaie unique dans le développement des différentes économies de la zone euro. On ne peut plus revenir à ce qu’il y avait avant, il est trop tard pour faire machine arrière. Le prix serait trop lourd à payer», a ajouté Philippe d’Arvisenet.

Luc Frieden, Ministre des Finances

référence. On ne peut plus se contenter des marchés voisins, nous devons penser au-delà de la sortie de crise», conclut Luc Frieden. Florence Thibaut

«Nous devrions tous réaliser ce que ce pays et ce continent ont à offrir. Pour cela il nous faut investir massivement en R&D, pour pouvoir rester à la pointe de la technologie. Le Grand-Duché peut et doit rester un centre de compétences au niveau européen. Au-delà du potentiel des marchés voisins, il dispose d’atouts à mettre en avant dans les marchés émergents. Les efforts de promotion de la place doivent donc être soutenus pour positionner durablement la place sur la carte mondiale des centres financiers de



Global Audit

Green paper

Financial auditors on the move? There is a lot of talk about the causes of the ongoing financial crisis. Banks were brought into the focus of the world population as the main culprits of that crisis. However, banks only form part of a chain that collapsed and nobody forecast the extent of the collapse. With hindsight, some people pretend they knew this would happen, but it is a matter of fact that the existing control environment of financial institutions was not efficient enough to prevent a break up of the world economy. European Commissioner Barnier has recently raised the question why auditors had not been whistleblowing. In fact, some banks faced bankruptcy only some days after their audited annual accounts were published. The European Commission has plans to reform the audit market and on October 13 released a green paper for comment by all stakeholders. The deadline for responses to the consultation was December 8, 2010. This green paper may be perceived as a declaration of war addressed by the European Commission to the large audit firms and might incite the mid-tier firms to cry victory. However, it is very dangerous to believe that weakening the major players in the audit market might improve the quality of audits and preserve financial markets from another crisis. The consultation is a first and important step in bringing change to the audit profession but there is a long way to go. One of the objectives of the EU commission is to change the audit market structure. In fact, the ‘Big 4’ firms audit more than 90% of the annual accounts of listed companies. In some countries such as the UK, but probably also Luxembourg, more than 99% of those companies rely on a Big 4 audit practice. This situation entails an accumulation of systemic risk. In case yet another of the



remaining four audit firms collapses as Arthur Andersen did following the Enron scandal in 2001, the entire audit market could be disrupted substantially. There is no way that the surviving audit firms could replace the vanishing firm in a relative short time span.

Joint-audits In order to help mid-tier firms to offer their services to listed companies, the European Commission suggests introducing joint audits. This may in fact help smaller audit companies to gain experience in this market and allow them to be considered by the boards and shareholders of listed companies as ‘Big 4’ - equivalent assurance service providers. But who says equivalent means equivalent quality and in essence also equivalent risk of failure. The green paper presented by the Internal Market Commissioner includes various other proposals to help mid-tier firms increase their market share. Other Commission suggestions address the question as to whether audit fees and auditor appointment should be regulated and if non-audit services should be provided to audit clients. Some of these proposals raise the perception that quality of the audits may be diluted due to conflicts of interest.

No question, an obvious need exists to restructure the audit market and to create a more diversified auditor offer. This is nevertheless not the answer to the question why the auditors did not protect the world from the current financial crisis. You may turn the question this way: Is it the responsibility of the auditors to protect the economy from a crisis? Often, a big gap exists between the auditee’s expectations and the audit services delivered in compliance with the International Audit Standards (ISA). The standards provide guidance on the objective and scope of an audit as well as on the auditor’s responsibility. In fact, the ISAs indicate that it is not the responsibility of the auditor to issue an opinion on the viability of a company. In this respect the EC considers that auditors should assess forward looking information and provide comfort on the financial health of companies. Whether this approach helps to prevent our world from another financial crisis is questionable.

Audit Global

Supervision of auditors The ever-evolving globalised world and the increasing risks and complexities inherent in financial products and services, compounded by the performance pressure on companies’ managements as well as the financial market scandals and distortions widely reported in the press, initiated the ongoing process for the review and the development of new audit regulations and standards. Audit companies and their staff face a real challenge here. The EC makes the proposal to return to the roots of the profession and to perform substantive audits as opposed to the current risk based audit approach. Whilst this proposal seems to overshoot the objective and be too simplistic, the audit standards or rather their application may be part of the problem. The extremely complex regulations and standards may incite auditors to concentrate on being compliant with those regulations and standards before focusing on the true and fair view of financial statements. There is no time for thought or professional scepticism even this is a prerequisite for a reliable audit opinion. Audit standards and regulations, supervision of the audit profession and quality controls are unavoidable and can be efficient if applied correctly. It is the duty of every audit company, be it a ‘Big 4’ firm, a mid-tier or a small audit company, to comply with those standards and regulations. It is however also the duty of the auditors to take time for thought and proper assessment. A proposal by the EC how this process can be initiated is however missing from the green paper.

There may be first information on the results of the Green paper. We may be seeing the start of the race for audit-market shares.

Tom Pfeiffer


The European Commission has issued an invitation to a high-level conference on auditing standards on February 10, 2011.

Tom Pfeiffer, Partner, PKF ABAX Audit




2011 10 -11.02

For further information visit our site


10-11 FEB. 2011



For further information visit our site

Industries > The family of Mangrove p.36 > BBH: Remaining a prime mover p.38 > Family Office : The new deal p.40 > Financial Centre: towards a global and more professional philanthropy p.42 > News p.44 > News p.45 > PERE drives new corporate or fund vehicles p.46 > News p.48 > IASB completes Phase 1 of IFRS 9 p.50 > The Aviation and Space Industry in Luxembourg p.52 > Depositaries facing new challenges p.54



Industries Venture Capital

Mangrove Capital Partners

The family of Mangrove Hans-Jürgen Schmitz is the straight-talking Managing Partner and co-founder of Mangrove Capital Partners, the Luxembourg-based Venture Capital entity which enjoyed great success with Skype. He discusses how venture capitalists have coped with the crisis and where his company is heading next. “Venture Capital has not suffered because of the global financial crisis. That is not to say it has benefited either. It hasn’t. But the heyday is over and has been over for a long time. “Since about 2000.”, so begins the candid assessment of the global context for venture capitalists from Hans-Jürgen Schmitz. This applies in particular to both Europe and the United States and, as in myriad other areas of the economy, Asia

the late seventies like the one across the pond. Can Western players take advantage of the rising East? While it is possible that they can, Schmitz sees obstacles. Venture Capitalists see the benefits of proximity and ways of doing business and raising funds clearly vary from one market to another. Furthermore, there is a natural desire that funds from a region go toward start-ups in the same region.

prepare yourself incredibly thoroughly; roots in the geography from yourself or within your team. So there is real potential there but who is going to exploit this potential? American VCs have tried…” The booming Asian markets can thus provide opportunities for Western investors, but not necessarily Venture Capitalists.

"The trends point toward emerging markets and niche products and ideas in e-commerce, while for mobile it is all about improving communication and location-based services, as well as enhancing user-experiences and boosting screen technologies" is certainly emerging and the Asian venture capital scene is looking vibrant, even in its comparative youth. As for Europe, “venture capital has never had the same glamour as it has enjoyed in the United States”, says Schmitz, all the while pointing out that just as the Asian scene is young, so is the European one, dating as it does from the mid nineties or so, rather than



What happens after that, in an ideal scenario, is that the company develops and spreads beyond local borders. So while Schmitz admits that Mangrove’s investors have challenged them to explore the opportunities arising in China, India and South-East Asia, “it is not as easy to do business in those places as it might be in The Netherlands or Germany, unless you

Luxembourg by chance Different VCs have different strategies when it comes to going about their operations. Some are quite content to stay local, regional or national. It all depends on their circumstances and ambitions. However, this was not a viewpoint held by Mangrove at any stage in their development. So why

Venture Capital Industries

the Grand Duchy? “For all intents and purposes, Venture Capital was non-existent in Luxembourg”, shrugs Schmitz. “When we set up shop here it was not by accident, but equally it was not the result of a very elaborate thought-process. Effectively, Mangrove is here because the founding partners were here and did not want to impose any more on their families than they already were.” This is not a bad thing, however. As Schmitz points out, “for Venture Capital entities like ours, the positive thing is that there is no home market”. You are forced to go out and open your horizons, look at different geographies and different mentalities. What we see in many cases when it comes to our competitors, so to speak, is that they tend to be focused on their national market, whether they intend to be or not, save for a few exceptions. We do not have a choice. ”And these ambitions are clearly backed up by the highly international flavour of the projects Mangrove has been involved in", and Luxembourg can provide all the instruments you need to set up projects. Other countries like France and the United Kingdom can also do this, but Luxembourg is not lacking anything. You can achieve all you need towards your investors here and there are no structural disadvantages. Perhaps there is still a gap when it comes to the drive shown by people and the creation of ideas, but the tools are there.”

fail at one time and succeed at another a few years down the line.” Back to the three areas mentioned. Where will they develop? The trends point toward emerging markets and niche products and ideas in e-commerce, while for mobile it is all about improving communication and location-based services, as well as enhancing user-experiences and boosting screen technologies. And entertainment? Schmitz fleshes out a project that could be considered a next generation, Facebook-type

vehicle using real time video. But any idea can only become a concrete project if the enabling technologies to make it run are developed and these technologies are also an area Schmitz sees as worthy, even if value is only brought indirectly. Either way, we’ll know what the good investments have been when we see what products emerge from them. For Mangrove, which has a vested interest, there is plenty to be getting on with. Brian Power

The government of Luxembourg is very keen to diversify the economy, setting up as it has done the biohealth cluster. This is not a field in which Mangrove is involved, meaning that Schmitz is reluctant to comment on it as a potential area for development. Where does he see things moving for Mangrove? “I see three areas: e-commerce, mobile and mobility and entertainment and digital media, but of course you can never be sure.” So while these are the key areas, which projects within these areas remain uncertain, but Mangrove is not exactly risk-averse. “We are always looking slightly off the beaten track”, says Schmitz. “And sometimes a project can


The evolving portfolio

Hans-Jürgen Schmitz, Managing Partner and co-founder of Mangrove Capital Partners



Industries Funds

Brown Brothers Harriman

Remaining a prime mover The venerable US partnership bank Brown Brothers Harriman, founded in 1818, has been present in Luxembourg since 1989. Partner Geoffrey Cook heads up operations in Luxembourg and gives his take on the future for the Grand Duchy as a centre for custody, the impact of the AIFM directive and what role his company currently plays.

"Luxembourg and Dublin both substantially focus on the crossborder fund industry. There are advantages to both domiciles" “We are a top five player in custody and in fund administration for servicing Luxembourg investment funds if you rank us by asset size. We have around 250 billion US dollars of Luxembourg fund assets that we service and then roughly another 250 billion of other financial institution assets”, says Geoffrey Cook to introduce the scale of Brown Brothers Harriman’s (BBH) operations in this country. As well as Luxembourg, in Europe BBH also has offices in Dublin, London and Zurich. Luxembourg is the largest, with a total staff of around 500. As a whole, the company has 900 employees in Europe and each office looks after different aspects of the business. So how is Luxembourg viewed as a centre for custody? “I would have to answer that with two hats on”, says Cook. “As well as my role at BBH I am also the chairman of the Alfi ABBL depository bank forum. But I have to differentiate between custody and depository: the former is the safe keeping of assets whatever they happen to be. This term is used commonly and freely, as is the term depository. There is a difference.



Depository responsibilities are fiduciary and trustee-like responsibilities which sit in addition to safekeeping. In these matters, I would say that Luxembourg is already a recognised centre and it has the potential to maintain that position for the future when it comes to offering a differentiated and superior product. Some of the broadest expertise in custody and depository is here and that is driven by the breadth of product that Luxembourg has.” The difference between Luxembourg and other countries comes into focus here, according to Cook. “Many fund domiciles around Europe hold mostly domestic securities. Luxembourg and Ireland, are cross-border fund centres. The products it services are primarily invested globally and also sold in the greatest number of countries around the world. It must maintain this position going forward. And in 2011 the depository bank forum will be creating a cluster around education and training which will sustain and grow the expertise we have. Attracting and maintaining talent is vital. The required skill sets are changing. The HR pyramid is changing into a diamond.”

Competitors or allies? Does this put Luxembourg in competition with the other centres from a BBH perspective, or is there a complementary nature to their relationships? “Luxembourg and Dublin both substantially focus on the crossborder fund industry. There are advantages to both domiciles. Luxembourg has more to gain by cooperating with Ireland and the two together can compete with the other markets around Europe and further afield.” And what of London? “It’s an interesting compare and contrast. The vast majority of UK funds are sold domestically, so from a fund-domicile perspective it’s domestic, but from an asset management perspective, many of the world leaders are resident in London. But they’re typically managing Luxembourgish or Irish product.” In the future, Cook believes that alternatives will only grow in importance worldwide. Bearing this in mind, what kind of obstacle does the AIFM directive represent? “This country can take advantage”, he says firmly. “We must have an equivalent mindset to 1988, when UCITS I was created. Luxembourg

Funds Industries

was a first mover back then, stealing a march on others and has been pretty consistent ever since. Many of the pieces of the jigsaw are in place, but they need to be tied together more neatly. When it comes to alternatives, Luxembourg is already a leader when it comes to private equity and real estate funds and is coming up on the rails in other alternatives such as hedge. But there is a lot of headroom in the remainder of the alternative asset classes.” The country has also been proactive, creating SIFs, the vehicles of choice for much of the alternative investment fund industry. “I consider these lighter but still regulated investment funds, which have permitted the onshoremovement of many asset managers into Luxembourg from the Channel Islands or the Caymans, for example. Many of them want to distribute around Europe to institutional or high net worth clients and they can do this more easily via an Irish or a Luxembourgish fund.” Yet there are still some issues. “We are walking a fine line. The way the AIFM directive is currently drafted leaves some causes for concern in that we have taken, up until now, a series of lightly regulated products for institutional investors and under the proposed guidelines they will become much more regulated. This will provide opportunity for non-European domiciles to have competing lighter products. Luxembourg may miss out on global distribution because the vehicles may be seen to be too highly regulated. It could be more nimble to set up a Cayman fund and sell it to Japan.” He also believes assets will be driven towards larger players, to the detriment of smaller ones and it is they who have provided much of the recorded growth over the past decade. “That said, assuming calibration can be maintained, Luxembourg can see this as an opportunity. Under the directive, responsibilities will become clearer and transparency will be forced. The playing field will be levelled and there will be more guidance for depository banks.” There is much to be welcomed, in other words, but also certain clarifications and adjustments are required. Cook claims he, like many others, is “cautiously optimistic”. He believes the framework is there to take Luxembourg forward. Next up? UCITS V… Brian Power

Geoffrey Cook, Managing Partner at Brown Brothers Harriman



Industries Family Office

Hubbing the Family Office activity

Family Office: The new deal “Once below a time”, as Welsh poet Dylan Thomas would write, “I was an Intendant”. Many wealthy families have put a person in charge of managing their financial interests. Thus the Family Office is not a new player in the area of the HNWI. But today, the Family Office’s role extends to encompass other tasks and becomes a new way to manage the family’s structure. In the past, the Intendant was responsible of all the goods, properties and revenues exploitation of one sole family (as a Single Family Office). Today, we can find both the Single- and the Multi-Family Office. Another evolution is that the Family Officer’s role is not limited to being an Intendant anymore. The Family Officer offers several services to the family but he is not involved in the ‘to do’. Rather, his role is to organise, propose, monitor, check, assess, advise, etc. The Family Officer plays more the part of a music conductor than of an instrument player. As of today, many people have chosen to work in this specific branch of financial management. Actually, anybody can choose to call oneself ‘Family Officer’ and offer such services because the term is not protected neither by law nor by anyone. This is an important point to keep in mind when looking for somebody to hire as Family Officer.

Independence Even though there is no Family Office Supervisor (as of today), we can safely state five conditions to be a real Family Officer: to have the Family Office as one’s core business; to have a deep knowledge of each activity falling under the FO’s scope; to be independent - i.e. to not have any conflict of



interest; to be transparent in fee payment; and to be as close to the family as possible to develop a long-term view. Independence is probably the key point for the family. The client must have the absolute certainty that the Family Office’s only purpose is to serve the client’s own interest. To guarantee its independence, the Family Office has to settle an independent juridical company focused exclusively on the Family Office’s core business. The Family Office can coordinate, optimise and/or consolidate various kinds of businesses: Corporate Governance, Legal Advisory, Assets Monitoring, Private Equity, Care-taking Services, Bank Relation Management, Insurance, Property Advisory… They also advise the family in Development, Transmission, Family Coherence and act as a Family Conciliator.

Hub for FO’s Most of the Family Offices are British or American. But the need for such professional entities is real in Europe, the Middle East, Russia, India and Japan. Luxembourg already concentrates a high degree of expertise in Wealth, Finance, Legal and Tax Advisory. We have always integrated different working cultures into our own and moved forward with an international vision in mind. In Luxembourg, we are proud of

Family Office Industries

Located in the centre of Europe, Luxembourg could rapidly become the hub of Family Office activity. having a highly professional track record in banking, insurance, funds, law, etc. Located in the centre of Europe, Luxembourg could rapidly become the hub of Family Office activity.

LAFO In June 2010, two Family Offices created an association called LAFO (for ‘Luxembourg Association for Family Office’) to gather people with experience in the field. This association has three kinds of memberships: the Associated Member (only for a Family Office Company), the Partner Member (service provider to the FO) and the Honour Member. In the future, it may be possible to organise Family Officer training for students and professionals. LAFO’s goal is to contribute to the development of Luxembourg to help it become the European reference for all Family Officerelated activities. Luxembourg could be the first country to organise the profession and establish Family Office standards of best practice.

We can estimate at one hundred the number of Family Offices present in Luxembourg today. So, with the creation of a legal status, with LAFO’s support and various forms of ad hoc training, we can plan for the Family Office activity to become the fourth pillar of Luxembourg’s financial sector, alongside Private Banking, Insurance and the Fund Industry. Bertrand Michaud


This opportunity is very timely because more and more people are ranked as HNWI or Ultra HNWI around the world. And they have a crucial need for management, centralisation and performance.

Bertrand Michaud, International Corporate and Family Office



Industries Family Office

Developing Luxembourg’s Fourth Pillar

Financial Centre: towards a global and more professional philanthropy Donating feels right. Despite the current crisis, well-off people consider philanthropy as a must, prioritising projects with a strong social purpose. This is also true in the case of developing countries where wealthy individuals show a growing interest in products fostering sustainable development. Among the most renowned philanthropists are Baron Taylor, pioneer of the French mutualist movement; Richard Wallace who provided Parisians with public fountains (the ‘Wallace fountains’) so that everyone could access drinkable water; John Davison Rockefeller who founded the Rockefeller Foundation to promote scientific progress worldwide; Albert Kahn who gathered through patronage one of the most significant collections of photographs entitled ‘The archives of the planet’; and Andrew Carnegie, the Scottish-born American industrial magnate who donated more than 380 million dollars to various foundations in the early 20th century.

founder of CNN; Pierre Omidyar, founder of eBay, who promotes microfinance in Bangladesh; Bono, founder of Irish band U2; and hip-hop singer Jay-Z with his Shawn Carter Scholarship Fund.

More recently, Bill Gates decided to dedicate 95% of his own fortune to fight diseases and illiteracy around the world. In June 2006 Warren Buffet announced his intention to give away 37 billion dollars, i.e. 80% of his personal wealth, to five charity organisations, including the foundation set up by his friend, Bill Gates. This is by far the highest amount a philanthropist ever donated. Other generous donors include Richard Branson, owner of Virgin; Ted Turner,

According to figures from consulting firm Bain & Company, cited by Forbes. com, “philanthropic donations amount to 0.6% of India’s GDP. In Brazil it is 0.3% and in China, just 0.1%, so India is more generous than other emerging nations. In America, donations amount to about 2% of the U.S. GDP. The good news is that more and more wealthy individuals in India are establishing philanthropic foundations. A new generation of corporate leaders is



French philanthropists also deserve to be mentioned, particularly for their sponsoring of contemporary art: Antoine de Galbert, businessman and founder of Maison; Ariane de Rothschild who manages various foundations; and Alain-Dominique Perrin, founder of the Cartier Foundation for Contemporary Art.

Emerging markets

investing in social development. There are some two million charity operators in India. But not all have the requisite transparency and processes that will assure large-scale contributions from donors. In all of India in 2006, there were only about 500 that operated on a large enough scale (more than $100,000 in income) to be effective.”

Personal engagement vs social investment Philanthropists who support charitable goals are deeply engaged for their whole life. A donor’s mindset is focused not purely on investing, but rather on putting the money to good use. The foundation should always make clear if it is investing money or donating it. The donor should also ensure that the funds are used in the safest and most rational way, that all efforts are made to be efficient and that management is involved in the task at hand. He must have at his disposal all the organisation’s required financial reports and receive ongoing accounts of their actions on the ground.

Donors are not passive. Increasingly, they become personally involved and take a higher level of responsibility. This explains partly why foundations and charitable organisations have been booming over the past few years. For example, in an interview given to Forbes in September 2010, singer Jay-Z said that he was “getting that sort of feeling when it’s real, you know. I’m not just sitting home, writing a check to make myself feel good”. In the same interview, Steve Forbes said that philanthropy and business are almost opposite sides of the same coin, meeting the needs and the wants of others. Warren

Private foundation vs ‘Fondation de Luxembourg’ A foundation is a permanent transfer of one or several properties into a separate legal entity with a name and an in-house structure, in order to achieve a specific purpose, which can be the sole support of the beneficiary parties. The types of foundations can vary: families or mixed families; ecclesiastical, charitable or cultural foundations; mother foundation; etc. They can come with commercial activities or be holding-orientated.

Nevertheless, for real UHNWI, there is a need in Luxembourg for suitable legislation governing private foundations. The government probably prefers to have something more specific than in Liechtenstein where setting up a foundation requires no particular approval from the government and its objective is not necessarily philanthropic, religious, scientific, artistic or educational. But, if Luxembourg wants to be a big player in the field of philanthropic and social investment, a private foundation that only focuses on social or philanthropic issues has to been foreseen. Diana Diels

Philanthropy services will contribute to strengthening Luxembourg’s wealth man-

"Philanthropy services will contribute to strengthening Luxembourg’s wealth management sector" Socially responsible investing, which is different from philanthropy, is also a new trend. There is a need for social finance, social investment funds made by specialists and the creation of a Social Stock Exchange. Wealthy people see this as a new asset class. Recently, an American foundation invested half a million dollars in London-based social ventures. An advisor for a wealthy family confirmed that there is a need for socially-impacted and approved funds. But this asset class is managed by the family, not by the bank. Banks are not interested because of the legal risks involved, prudence, the fact that it is fiduciary driven, etc. Socially responsible investments require specific compliance and legal structuring. What needs to be made clearer is who shoulders the responsibility when something goes wrong.

agement sector. Through the ‘Fondation de Luxembourg’, created in January 2009, donors will find an open and dedicated discussion partner that offers personal support for structured philanthropic investments in a simplified framework.


Buffet added that it allows “the tougher problems of society” to be tackled.

Diana Diels, Luxembourg for Family Office



economy NEWS

...etc Funds

UCITS IV: Luxembourg’s success

European sovereign bonds. They said E-bonds could “halt disruption of the sovereign bond markets”; “ensure that private bondholders bear the risk and ultimate responsibility for their investment decisions”; “provide assistance to Member states in difficulty (...) also oblige them to honour their obligations in full”; ensure that the EU “benefits from this operation”; “create a liquid global market for European bonds"; and “strengthen Europe as a whole”. E-bonds help prevent future crises “by fostering fiscal discipline, supporting economic growth, thus deepening European integration”.

Camille Thommes, Director General of Alfi

Luxembourg passed the UCITS IV directive into national law on December 16, four days before the UCITS brand’s 25th anniversary. As in 1985, the Grand Duchy is the first EU country to adopt it. According to Camille Thommes, Director General of Alfi, since UCITS is a passport device for funds, its success could be repeated when the AIFM Directive comes into effect. In 2010, “Lipper FMI estimated that Luxembourg’s fund industry will grow at a rate of 10.4% over the next five years, resulting in assets of €2.6 trillion by 2014”, said Thommes. UCITS is increasingly well-known in Latin America, the Middle East and Asia. Some provisions, such as fiscal reliefs, take effect on January 1, 2011.


E-bonds to help the EU fight the crisis Jean-Claude Juncker, the Luxembourg Premier and President of the Eurogroup and Giulio Tremonti, the Italian Finance Minister, wrote in the Financial Times on December 6 to support the launch of



Giulio Tremonti, Italian Minister for Economic Affairs and Finance, M. Jean-Claude Juncker, Luxembourg Prime Minister and President of the Eurogroup (right) Crédit photo Source : Le Conseil de l’Union européenne.


La BCL prévoit une croissance d’environ 3% pour 2011 et 2012 Si 2010 aura eu une croissance du PIB de 3,8%, il semblerait que celle de 2011 soit limitée à 2,9 et celle de 2012 à 3,2. Les effets de la crise se feront donc encore très certainement sentir ces deux prochaines années. «Ces chiffres sont nettement inférieurs à ceux que nous avons connus avant la crise. Il est important pour Luxembourg de renouer avec une croissance de

Yves Mersch,

minimum 4%. Nous restons légèrement au-dessus de la moyenne européenne, mais ce n’est pas suffisant», a expliqué Yves Mersch, Président de la Banque Centrale du Luxembourg. Les taux d’inflation et de chômage ont quant à eux augmenté plus que de raison. «Nous prévoyons une détérioration importante des finances publiques si aucune mesure additionnelle n’est prise par le gouvernement pour réduire ce taux d’inflation qui est beaucoup trop élevé et bien au-delà de notre moyenne historique. Par ailleurs, il faut absolument relancer l’emploi, ça devrait être une priorité pour les mois à venir», a-t-il continué.

NEWS INdustries

...etc Appointment

Nigel Fielding to head HSBC Luxembourg

of them have a large client base or production facilities in Russia. Many major Russian companies already have a presence in Luxembourg, being active in various sectors such as information technology, life sciences and import/export and use Luxembourg as a hub for their international and in particular European Union activities and investments.

Nigel Fielding, Country Chief Executive Officer of HSBC in Luxembourg

Nigel H. Fielding has been appointed to the newly created position of Country Chief Executive Officer of HSBC in Luxembourg. The HSBC Group in Luxembourg employs over 600 people in several legal entities and business lines including asset management, securities services, private and corporate banking. In his new capacity, Nigel Fielding will be directing all HSBC businesses and activities in Luxembourg. He reports to Tony Mahoney, Deputy CEO of HSBC Continental Europe, based in Paris. Prior to this appointment, Nigel held a variety of senior positions in Europe, Asia and North America during his 30 years in banking. He has been based in Luxembourg since 1999.


Marc Feider, Senior Partner of Allen & Overy Luxembourg

Following the trend, Allen & Overy Luxembourg have opened a Russian Desk in Moscow to serve clients with business connections in both countries. "Creating a special dedicated desk is an innovative step for a Luxembourg law firm in order to address optimally growing inbound and outbound client demand into Russia and from Russia. Bringing our combined Russian-Luxembourg expertise on-site will enable a perfect match between client expectations and the provision of seamless legal services", Marc Feider, Senior Partner of Allen & Overy Luxembourg, explains. Nicolas Fermaud, banking and capital markets associate, previously in Luxembourg and based in Moscow since spring 2009, currently manages the desk.

Allen & Overy Opens Desk in Russia The economic relations between Russia and Luxembourg have developed strongly in the recent past. Luxembourg companies now rank in a prominent position as foreign investors into Russia and a number



Alan Dundon, partner at FIDEOS

Corporate Services

PERE drives new corporate or fund vehicles


The Corporate Services sector in Luxembourg is evolving and evolving fast. Alan Dundon, partner at FIDEOS, examines the reasoning behind these changes and the challenges and the opportunities which these bring.



Services Industries

Before talking about changes in the Corporate Services sector, it is useful first to define the term in a Luxembourg context. Broadly, Corporate Services firms provide services to ’alternative‘ asset managers and promoters active in the Real Estate, Private Equity, Infrastructure and Renewable Energy domains (hereinafter referred to as ’PERE‘) who use Luxembourg corporate or fund vehicles as part of their Global or European investment structures. Such services include domiciliation, accounting, corporate administration (referred to as corporate secretarial in other jurisdictions), tax and VAT returns and local directorships for Luxembourg companies and funds. The last years have seen significant developments in the PERE industry which are changing the profile and service offer of providers in Luxembourg and beyond. Some of the key developments are considered below.

Regulation There has been much debate in the press over the past 18 months on the implementation of the new Alternative Investment Fund Manager Directive (‘AIFMD‘), which looks to regulate players managing assets falling outside traditional asset classes sold to the mass public and which clearly includes PERE managers. Fortunately for Luxembourg, the government had already, from the mid 2000s, introduced new regulated fund vehicles - the Specialised Investment Fund (‘SIF’) and SICAR – which are adapted to the PERE market and already fulfil many of the AIFMD requirements. This caused many providers to re-structure themselves in recent years, by necessity becoming new regulated service entities

(PSF), implementing new ‘fund’ accounting and corporate systems and hiring a different profile of staff, more accustomed to the particularities of the fund sector. As a result Luxembourg Corporate Service providers are well placed to support their clients in meeting the requirements and challenges of the new directive.

Luxembourg Substance We see and expect continued pressure by foreign governments on the validity of using Luxembourg and indeed other investment centres, as part of a multinational investment structure. Luxembourg Corporate Services providers increasingly need to educate and guide clients in ensuring the proper management and governance of Luxembourg companies locally and to provide this local support where appropriate. This, together with tighter regulation, creates opportunities to expand the role played by Luxembourg service providers increasingly to act as true local business partners and guiding clients in the process. Against the backdrop of the above, it is clear that the Corporate Services industry in Luxembourg is becoming increasingly costly for providers, with tighter regulation, ongoing system investment and the continuing need to hire more high profile resource. To remain competitive, the industry as a whole needs to become more efficient, cost conscious and innovative, with the need for further use of automation, standardisation and the appropriate level of outsourcing. In this respect, the Corporate Services industry can leverage the experience of the banking sector in Luxembourg who were faced with and successfully reacted to, similar challenges in the retail fund industry over the last decade.

Competition Whilst Luxembourg, as a European onshore investment centre, is well placed to service the needs of PERE promoters, this is not without strong and increasing competition from other European financial centres, principally Malta and Cyprus, but also the Channel Islands with its long history in the industry. In this respect, to ensure that it maintains or further develops market share, Luxembourg will need to continue actively to demonstrate its competitive advantages – its central location in Europe, a developed network of highly quality tax, legal and audit firms, a multilingual workforce, an active and innovative industry body (ALFI) and a business-friendly government. Within Luxembourg, foreign Corporate Services providers have established offices in the recent past, reinforcing the international view that Luxembourg is ideally positioned for further growth in this industry. This increased competition is good for the Luxembourg market and clients. It will in our view also accelerate the already established trend of consolidation in Luxembourg, with a future local market likely to comprise a smaller number of larger players with the critical mass, expertise and resource to service this sector effectively and remain market competitive. Numerous challenges exist and will present themselves in the future in what is a fast moving and dynamic industry. Luxembourg is ideally placed to meet these challenges and has a track record in creating opportunities and increasing its client base in the process. Good news indeed for the market and the industry. Alan Dundon



industries NEWS

...etc Stock Exchange

Europe’s largest ever high-yield bond issue On December 1st, the Luxembourg Stock Exchange started to trading a bond issue with the largest amount ever issued for a high yield bond in Europe. It is also the world’s largest high yield bond for this year. The issue of Wind Acquisition Finance S.A. was composed of two senior secured notes for amounts of €1.75 billion and $1.3 billion respectively. The notes will mature in 2018 and pay semi-annual interest of 7.375% for the Euro notes and 7.25% for the dollar notes. Wind Acquisition Finance S.A. is a wholly-owned subsidiary of Italian telecoms company WIND Telecomunicazioni S.p.A. On November 19, WIND Telecomunicazioni announced it had completed its re-financing plan of €6.6 billion. The net revenue of the operation will be used for the total refund of WIND’s current and outstanding senior credit facilities; the prepayment of the Second Lien Notes issued by WIND Finance SL S.A.; the pre-payment of the Senior Notes with expiry date 2015 issued by WIND Acquisition Finance S.A.; and the commission payment relating to consent request, to cover administrative expenses and costs, payment of taxes, fees and indemnities.


Siemens to launch its own bank Siemens is expanding its portfolio of sales financing solutions with the upcoming launch of Siemens Bank GmbH. The bank will support sales at the company’s key operating sectors (industry, energy and healthcare) by providing loans and



guarantees to businesses, public authorities and project companies. It will also provide deposit banking services for Siemens companies and selected institutional third parties and take over services in the areas of risk management and risk control for Siemens and external customers. Siemens’ internal financing operations will gain more flexibility. Headquartered in Munich and wholly owned by Siemens AG, the bank will operate as a separate company. Crossborder activities are planned.

Roland Chalons-Browne, CEO of the Siemens Bank GmbH.

Global Regulation

IASB completes Phase 1 of IFRS 9: Financial Instruments, Classification and Measurement Everyone remembers recommendations issued in 2009 by the G20 and market participants regarding the need to redesign a number of international accounting standards and in particular those relating to financial instruments. Indeed, the current standard IAS 39 related to the accounting and valuation of the financial instruments and the underlying fair value concept have been accused of all the ills of the financial crisis: too complex, misunderstood, having too many estimates and too much judgment embedded in the application of the standard, inducing an unhealthy volatility in earnings... The recommendations aimed primarily at improving the rules concerning the valuation of the financial instruments based on liquidity and the holding horizon of detention, while strengthening the framework of fair value accounting. It also looked at improving the terms of the credit risk provisioning, at enhancing the quality of disclosures related to off-balance sheet exposures, at reaching a better convergence of accounting standards at the global level and a reduction in the complexity of understanding and implementation of the accounting standards on financial instruments. Pressure on this subject on the International Accounting Standards Board (the IASB) was and is still enormous.



IAS 39 has therefore been subject to a draft recast into 3 phases: phase 1 devoted to the assessment of the financial assets and financial liabilities, phase 2 relating to the depreciation of financial assets and phase 3 dealing with hedge accounting. In November 2009, the IASB issued the first part of Phase 1 of IFRS 9 dealing with the classification and measurement of financial assets within the scope of IAS 39. On 28 October 2010, the ISAB issued amendments to IFRS 9 to address financial liabilities brining phase 1 of the project to an end. The first exposure draft on the phase 2 was issued in November 2009, then a second exposure draft with a view to simplification for a completion is scheduled for the 2nd quarter of 2011. First exposure draft on the phase 3 followed for a completion of all IAS 39 revision project is scheduled for the 2nd quarter of 2011. This very ambitious schedule might nevertheless be reconsidered and the issuance of the final standard extended until late 2011. Recall that the implementation of phase 1 of IFRS 9 is required starting exercises beginning from 1 January 2013 with possibility of early application. The IASB intends to grant a period of three years from the date of publication of the phase 2 and the first date of its application. As for the date

of application of phase 3, nothing is clear at the moment. The major issue is that the European Union has not yet adopted IFRS 9. This means that European companies and banks cannot apply this standard while other non-European entities may do so early. This clearly does not encourage one of the objectives pursued in the revision of standards, to ensure better comparability between companies and banks. It appears that the European Union will likely wait for the three phases of the project redesign to be finalized to pronounce on the nonadoption of the standard or its adoption in whole or part. Indeed, experience has shown with IAS 39 that one opt-outs cannot be excluded. This puts European companies and banks in a delicate situation where, even if they do not know the final position of the European Union (rejection, partial or full adoption), they are already obliged to conduct simulations to determine the impacts of IFRS 9 on their financial statements, their performance and, where appropriate, possible impacts in particular tax and regulatory matters. This is even more complicated given the fact that phases 2 and 3 of the project have not seen completed.

The goal of phase 2 is to meet, once more, the criticism expressed in the IAS 39 in the context of the financial crisis. The depreciation model required by IAS 39 was widely called into question because it was based on an effective interest rate which ignores expected losses from the start, only incurred losses are subject to provisioning. The banking sector specifically criticized this model considered to be inconsistent in that the anticipated losses are implicit in the initial assessment (at fair value) but are not reflected in the effective interest rate of the subsequent valuation; the products of interest are overstated until the occurrence of an event of default and the sudden devaluation at the occurrence of this event is in part a reversal of previously recorded income. The exposure draft thus plans to correct this inconsistency. The objective of the phase 3 is to simplify the current provisions of hedge accounting and better to reflect the implementation of risk management by companies by aligning accounting treatments and risk management practices to a maximum. At this stage, the project does however not cover macrohedging issues particularly relevant to credit institutions, or coverage of net investment. Judging by the amendments definitively issued since November 2009, we could be tempted to say that there has not been much progress between this date and 28 October 2010. However, if one follows all developments and reflections related to the phases 2 and 3 closely, we realize the wealth and bredth of the material and project redesign. And yet again, we can ask ourselves if one of the objectives pursued, namely the simplification of the standards will be achieved by IFRS 9. The future will tell us but it is reasonable to be doubtufl. By Bernard Lhoest

Bernard Lhoest, Financial Services Leader and Banking and Capital Markets Leader at Ernst & Young Luxembourg



Industries Space & Aviation

Romina P. Leiboff, lawyer at the law firm Wilson Associates

In the air

The Aviation and Space Industry in Luxembourg ©

The importance of the aerospace industry is not only its direct impact on the national economy but also in terms of providing transportation, technology, defence, media and communications and goods and services, which are vital to other sectors. The aviation and space industry employs over 4,155 persons in Luxembourg.



Space & Aviation Industries

There are 18 air transport companies in Luxembourg, 14 for passengers and 4 for cargo listed in the ‘Répertoire des Entreprises’ by Statec in 2010. This includes leading companies like Cargolux and Luxair. Business aviation companies like Luxaviation, Luxair Executive, Global Jet and Flying Group, provide an alternative service to commercial airlines. There are also 12 companies in the field of satellite telecommunications. The national space and telecomms sector includes SES, Euro-Composites, HITEC Luxembourg, LuxSpace, Air Liquid, DKE Aerospace, P&T and Intelsat. Most of these companies are members of GLAE, the ‘Groupement luxembourgeois de l’aéronautique et de l’espace‘, a cooperation platform for the development of the national industry and research, established as a non profit organization after Luxembourg joined the European Space Agency (ESA) in 2005. GLAE facilitates the participation of local companies in international public tenders. Luxembourg contributes to both mandatory and optional ESA programmes, mainly in the field of technology development, navigation and earth observation. In this regard, it is interesting to note the participation in such programmes of local companies and research centres, which benefit from the application of the principle of ’geographical return‘ related to the financial contribution of Luxembourg to ESA programmes. In accordance with this principle, Luxembourg’s overall return coefficient is calculated as the ratio between its percentage share of the total value of all contracts awarded among all Member States and its total percentage contributions, which ideally results in a coefficient of 1, except for the return

on the mandatory programmes which is governed by Article 7 of the Agreement between Luxembourg and ESA in the article VII and annex V of the ESA Convention (Law of 14 June 2005, approving the creation of ESA Convention; Agreement between ESA and Luxembourg). In placing all contracts, ESA gives preference to the industry and organisations of its Member States. Regarding optional programmes, particular preference is given to participating States.

Manufacturing for Space In the space manufacturing sector, it is interesting to observe that ORBCOMM Inc. and OHB System AG (of which LuxSpace is an affiliated company) entered into an agreement to build and launch two Automatic Identification System (AIS) enabled satellites. LuxSpace will construct and launch these two AIS microsatellites (planned to be launched in the second quarter of 2011) and provide the required ground support equipment. A third satellite is also expected to be launched by LuxSpace. A certain advantage in Luxembourg is the willingness of the public sector to contribute to the development of the private sector. This is evidenced by the constitution of the Luxembourg Space Cluster, which supports the development of technology and research projects. Another relevant institution is Luxinnovation, the national agency for promoting innovation and research.

Air Finance ready for take-off In the aviation sector, the Civil Aviation Authority provides a user-friendly service

to local operators in respect of procedures such as aircraft registration, which can be quite cumbersome in other jurisdictions. Sale contracts and mortgages on aircraft are exempt from registration and transcription fees. The tax administration in Luxembourg is open to discuss specific projects and provide a preliminary ruling in order to approve a particular transaction. Furthermore, based on article 43.1 h) of the Luxembourg VAT Law of 12 February 1979, as amended, the supply of goods and services for the purpose of air navigation and related to aircraft used by airlines operating mainly on international routes are exempt from Luxembourg VAT. In addition, in accordance with the law of 4 December 1967, as amended, aircraft acquisition may benefit from investment tax credit, which will be deducted from corporate income tax. Moreover, regarding the access of local airlines to export credit financing for aircraft acquisition, it is relevant to note the advantage of Luxembourg as a Contracting State to the Convention on International Interests in Mobile Equipment (‘the Cape Town Convention‘) and Aircraft Equipment Protocol. Airlines based in countries that ratify and implement the Cape Town Convention may obtain one-third reduction on the risk premium of the Ex-Im Bank for aircraft financing. The aerospace sector in Luxembourg has been properly launched, is flying straight and level and has new routes to operate. Advantageous regulatory and tax regimes are favourable for any further growth of the sector.

Romina P. Leiboff



François Génaux, Partner, PwC Luxembourg Financial Services Consulting Leader


Depositaries facing new challenges The face of the custody business has changed as much as any other area of the financial services over the last 10 years and will continue to evolve rapidly. More than ever the European securities industry is facing a major transformation of its landscape as a result of the market requirement for more transparency, control and cost diminution of front and back office services. These changes are currently taking place in the European securities industry, driven by the market itself, initiatives by countries and a new regulatory framework.



It is clear that custodians have to gear up for significant changes ahead, dealing both with increased market competition and legal requirements stemming from the recent and forthcoming directives and legislation: UCITS IV, AIFM, Depositary function, FATCA… The business model is also under pressure with the decrease of key revenues from


Laurent Collet, Director, PwC Luxembourg Finance Function Effectiveness Leader.

safekeeping and/or securities lending services, the new segregation of business duties and the on-going requirements for more transparency. These current challenges should also be put in the perspective of more competition with the local Central Security Depositary (CSD) and the arrival of the Target 2 Securities (T2S) Settlement platform.

Custodians and their clients are grappling with the fact that business models and platforms that have served them well for a decade or more will be insufficient to either maintain or enhance their market positions in the coming years. Continued success requires the ability costeffectively to meet the needs of traditional clients as well as alternative prime services and other marketplace demands.

Custodians face challenges that require service innovation and investment as well as a clear definition of their roles and responsibilities. These issues include the requirement for more transparency, more due diligence, more handling of complex instruments, greater follow-up of corporate events and at the end of the day tight management of their profitability.

Addressing the unique needs and risks of servicing the alternative asset managers and prime services industry has driven much of the need for planned improvements in reporting, products and organisation services and standardisation of processes.

In this context, custody providers face critical business decisions regarding business strategy and investment.

As a result of the rapid cost reduction, sparked by the financial crisis, providers had to optimise the cost effectiveness of existing platforms and infrastructure to maintain margins and/or to support key planned investments.

Despite difficult market conditions, custodians must continue to upgrade current platforms to keep their competitive position. Both traditional firms and alternative asset managers will continue to outsource what they perceive as peripheral functions to focus on core competencies. Through increased outsourcing and offshoring, custodians will have the opportunity to pick up fund accounting, corporate actions, tax processing and other back- and middle-office functions, predictable revenue streams adding large to their existing base. As the custodians have often similar processing, reporting capabilities and pricing models, those who craft creative solutions with their clients while excelling at the on-boarding of new clients and services with minimal ‘pain‘ and providing the best ongoing service levels will turn out to be the key differentiator.

Continued p. 56 >>>




In order to be ready for these future opportunities, custodians need to have a comprehensive analysis of their current market offering and a vision of their future target business model including a good understanding of their capital requirements, roles and responsibilities. It is also necessary for custodians to come up with precise ideas of their most likely cost structure and how they can make a difference. The whole value chain needs to be analysed carefully to know how it will be affected. We recommend using an innovative approach to determine the appropriate business and operating model. Moving to a new business model involves the definition of the following key pillars: • Blueprinting (target model) for success; • Pricing that matches business reality: moving away from transaction pricing to a more performance-based pricing; •P  ositioning as a centre of excellence;



•A  cquiring, developing and retaining the right talents in the right places; •R  elying on well established governance, good risk management and compliance; •S  etting up comprehensive policies and standards; •D  efining an IT architecture strategy; • Managing clients, business reporting, analytics and KPIs as clients increasingly want to understand how their processing, accounting and services are being delivered. The bottom line is that custodians need rapidly to review their business models, market focus and client segmentation strategies in the light of a changing marketplace. In a number of organisations, efforts will continue to enhance the integration of infrastructures. What’s more, new platform architectures and migration roadmaps continue to be executed in critical areas (e.g. reporting, portfolio accounting, transfer

agency, etc.) seeking to move over time to more efficient and effective platforms. Tomorrow’s market leaders and those who increase their market share will be the custodians able to demonstrate their capacity to invest in new service creativity and product differentiation while mastering the costs related to the required maintenance and production. This includes maintaining a proper level of flexibility but also executing a new game plan that accelerates cost reduction efforts (economies of scale) while preserving critical investment funds needed to create/ maintain the world class platforms necessary to be successful in this space. Today, Luxembourg custodians who proactively anticipate these challenges will be able to transform them into new business opportunities and leverage on the new integrated market environment and regulatory framework. By François Génaux and Laurent Collet

Nation > The Luxembourg talent equation p.58 > Les PSF de support, racines de la finance p.60 > Que vaut mon IT ? p.62 > Luxembourg for Finance version 2.0 p.64 > ABN AMRO Luxembourg to develop Independent Asset Managers market p.66



Nation Talent


The Luxembourg talent equation


Can Luxembourg continue to attract, develop and retain the talent necessary to sustain and grow its economy?

Ole Roed, Partner in Harvey Weston

Nigel Plumpton, Partner in Harvey Weston

Luxembourg has been extremely successful in acquiring the human capital necessary to create one of the world’s strongest microeconomies, but as the EU struggles, the larger states increase their dominance, the Euro falters and the global banking industry lurches from one disaster to another, we have to ask what the future might hold.



In a little over two decades, Luxembourg has transformed itself into one of the world’s leading financial centres. An array of lawyers, accountants and other professionals, have ensured that Luxembourg has built a strong foundation in the funds industry, private banking and insurance and this continues apace with new

developments e.g. hedge funds, portable pensions, etc. However, sustaining real competitive advantage in this sector will become ever more difficult as legislation tightens around financial services. Luxembourg will need to further intellectualise its offering to justify

Talent Nation

its premium pricing, which is likely to mean a shift in employment, with further cutbacks in the ‘back office’, offset by more highly qualified personnel working in ‘boutique’ operations. Image-wise this has to be good news and should help to create an even more dynamic and attractive working environment. The focus will be on developing smart financial products targeted at the world. Increasingly, there will be the need to diversify away from EU markets into the BRICs and beyond. This geographical diversification will bring with it a series of linguistic and cultural challenges, both for inbound and outbound investment. Mandarin, Russian, Spanish, Brazilian Portuguese and English will grow in significance with both French and German becoming less important as client languages.

The brain drain In the shorter term there is an opportunity for Luxembourg to attract talent from other Eurozone countries with high rates of unemployment, but there is likely to be a parallel talent migration (‘brain drain’) to the emerging economies, in particular Asia, as the EU struggles to provide careers for the next generation. We also know that innovative and entrepreneurial talent is highly mobile, highly skewed and highly clustered geographically. The countries and regions that nurture, attract and retain global talent gain enormous economic advantage. If you can attract entrepreneurially minded individuals, they will bring their ideas with them and have a positive impact on the local economy. They will also motivate others with their dynamism and entrepreneurial spirit. Importing talent from elsewhere is only part of the equation since such individuals are inherently mobile and may choose not to stay longer term. However, this has been happening to some extent since Luxembourg created its financial centre

and has still added considerable value to the local skills base. Many of the best managers to have worked in Luxembourg were here on a short term contract, often from head office, for whom the time they spent here was a crucial part of their career development. Quite a few stayed and others have gone on to become global stars in their parent organisations. Overall, Luxembourg has gained from their willingness to share skills, experience and knowledge with others.

also encourage more Luxembourgers to go to university and open up their career horizons beyond the public sector, which has to be good news for the local economy. Hopefully some of them will take up career opportunities in other locations and expand their knowledge base beyond the boundaries of Luxembourg. Ole’s MBA from INSEAD certainly encouraged him to pursue an international career outside of Norway, which included stints in the USA, the UK and in the UAE.

An entrepreneurial mindset

Diversification into new sectors will rely on new skills, particularly if Luxembourg has serious intentions outside financial services e.g. biotechnology. The university can have a positive impact on this through a strong research focus. As an ex-research scientist, Nigel knows the importance of having the right ‘names’ in place to attract young research students. Many years ago he had the opportunity to work with a professor at The Royal College of Surgeons in London who went on to win the Nobel Prize for Pharmacology. This was an immensely rewarding and intellectually stimulating experience. Once good researchers get here, many will be encouraged to stay, which will help attract other like minded people to Luxembourg.

Undoubtedly, those geographical areas with diversified economies and high concentrations of well-educated people tend to do much better when it comes to weathering economic storms. Even as financial industries are shedding jobs, the major financial capitals are better positioned for the future because of their large, diverse, open economies populated by innovative and entrepreneurial talent. The recent crisis is likely to change the direction in which talent flows. If it does, this could have even bigger consequences than in previous times since economists agree that economic growth and technological innovation today revolve around human capital. To ensure that we can attract the best talent we also need to have a flexible immigration policy and the winners will be those states that attract and retain wealth creators and entrepreneurs irrespective of their geographical origin. Opening a university in Luxembourg was a major step forward, although it could be argued that it was 20 years late. Currently ranked 1281st in the league of world universities, it has a long way to go before it starts to attract the world’s best students, but the early signs are good. By drawing in top young talent there is every chance that the quality of life in Luxembourg will encourage many of them to stay with obvious benefits to both the local economy and the intellectual environment. It will

If the public sector is perceived to be less attractive as an employer, then young people will be encouraged to take a more entrepreneurial career route. This will be a positive leap forward which cannot be achieved overnight. With an improved entrepreneurial culture, diversified economy, solid research base, a general mood of optimism and a reduced public sector burden we believe that Luxembourg has a great future as one of the world’s leading micro-economies. However, it’s going to take strong political will to make the changes necessary to stay ahead of the game. By Nigel Plumpton and Ole Roed



Industries Technology


Les PSF de support, racines de la finance Aujourd’hui les entreprises sous l’accréditation PSF de Support (articles 29 de 1 à 4) sont au nombre d’une petite centaine et occupent peu ou prou 3.500 salariés. Maillon essentiel dans la chaîne d’exécution des prestations financières, les entreprises dites PSF/S couvrent une multitude de fonctions, allant d’agent administratif du secteur financier, à agent de communication à la clientèle ou opérateurs de systèmes informatiques (primaires ou secondaires).

"Nous sommes prêts à aider les institutions luxembourgeoises à démontrer les avantages du Luxembourg, et à mieux offrir leurs services au sein de leur groupe" «À l’heure actuelle, nous distinguons une variété d’entreprises qui ont obtenu l’agrément du Ministère des Finances en tant que PSF de Support, note Nicolas Buck, Président de l’APSFS, l’Association des PSF de Support. Il y a d’une part, les filiales directes et exclusives de grands groupes financiers : ce sont actuellement les seules DTS (Dexia Technology Services) et Clearstream Services. Ces groupes ont utilisé le vecteur PSF luxembourgeois pour mutualiser en partie leurs activités de support IT à Luxembourg. À leurs côtés, et parmi les premières à obtenir l’aval ministériel, il y a les filiales de grands groupes multinationaux, spécialisés dans la prestation d’infrastructures pour clients tiers, principalement branches de groupe d’outsourcing IT. Enfin, nous retrouvons un écosystème d’entreprises à capital luxembourgeois ou frontalier qui s’inscrivent dans une approche de niche ou de complémentarité vis-à-vis des acteurs globaux.»



Évidemment, le grand défi pour cette industrie des services, c’est qu’elle dépend entièrement ou majoritairement – le législateur a assoupli les conditions pour un PSF/S d’exercer dans un monde non régulé, donc hors finance – de l’activité du seul secteur financier et de ses trois piliers Banque, Fonds et puis plus récemment Assurances (le Commissariat aux Assurances ayant également imposé la sous-traitance pour ses compagnies aux PSF/S, toujours sous la supervision de la CSSF). Espérer que ces trois piliers historiques de la finance grand-ducale prospèrent toujours dans le futur est le vœu de tous. Mais du côté des PSF/S on sait que le cadre réglementaire sera plus contraignant pour ces acteurs et que les forces vives luxembourgeoises devront encore faire preuve d’imagination pour trouver de nouvelles niches pour prospérer. Le pays est


Nicolas Buck, Président de l’APSFS

actuellement bien placé dans l’opéra­ tionnel de la Finance, mais il faut inscrire ces qualités dans des centres de compétences forts qui limiteront les possibilités d’externalisation vers d’autres cieux et au contraire attirer de nouveaux intérêts à Luxembourg.

Promouvoir le statut PSF/S comme un label auprès des groupes financiers «Nous devons pouvoir prouver par des business cases que nous sommes très bien placés pour attirer les grands groupes financiers, qui ont une emprunte locale, à enraciner des activités mutulalisées pour leur groupe à Luxembourg», dit Nicolas Buck. Il y a toute une série d’entreprises qui veulent profiter des terres luxembourgeoises pour optimiser leur modèle de collaboration interne, et ce aussi en regard de la dimension fiscale avec la mise en commun de fonctions au sein de sociétés de type «Groupement Autonome de Personnes» qui libère les échanges

intragroupes de la tva. «Il faut prouver que ce modèle est adapté et répond à la problématique de l’outsourcing en matière de taxation, même s’il en demeure que la question est complexe et doit s’exercer dans des conditions strictes...» Aujourd’hui, l’association APSFS veut aider les banques qui souhaitent promouvoir leurs services au niveau de leur groupe en leur donnant tous les arguments forts pour le pays. «Nous sommes prêts à aider les institutions luxembourgeoises à démontrer les avantages du Luxembourg, et à mieux offrir leurs services au sein de leur groupe.»

PSF/S et PSDC Par ailleurs, l’association veut aussi soutenir ses membres qui font preuve d’innovation et qui se spécialisent dans des niches ou sur des compétences qui pourraient être reconnues ailleurs sur le globe. Cela pourrait être aussi le cas dans le contexte de la dématérialisation et l’archivage légal de documents

financiers ou confidentiels où l’Association vient encore de porter au gouvernement une invitation à faire aboutir ce dossier tant attendu depuis plus de trois ans. Il y a là une opportunité importante pour les PSF de support et les grandes lignes du cadre du futur PSDC (Prestataire de Services de Dématérialisation et de Conservation – ndlr de l’information) sont maintenant bien connues. Reste à doter d’autorité d’accréditation, l’ILNAS, des moyens et ressources nécessaires à cette nouvelle mission. Dans une récente missive au gouvernement, l’Association a estimé que ce «cadre réglementaire favorable constituerait une opportunité économique non négligeable pour le Luxembourg dans un contexte européen. Afin de ne pas perdre cet avantage de «first mover», nous sommes d’avis qu’il faut avancer ensemble le plus vite dans la démarche en cours. Nous espérons (…) que la loi puisse être votée et entrée en vigueur avant fin 2011.»



Xxxxxxxxxx Nation Technology

Cloud Computing

Que vaut mon IT ? S’il est deux populations au sein des entreprises qui peinent parfois à se comprendre, les services informatiques et la direction financière sont bien de ceux là. Ces derniers percevant bien souvent les premiers comme venant périodiquement déverser un jargon vaguement compréhensible, justifiant de grandes dépenses, puis repartant s’affairer à d’obscures tâches.

© Photography Raoul Somers

L’usage veut que l’on mentionne à la moitié de la présentation d’un projet IT ses justifications économiques. Le ROI (Return on Investment) a été longtemps l’acronyme à la mode, bien que difficile à calculer. Puis le TCO (Total Cost of Ownership), encore plus complexe à évaluer a été sur toutes les lèvres. Aujourd’hui, le consultant IT, promoteur d’un nouveau concept, le “Cloud Computing”, a trouvé le ‘joker’ de ce ‘moment économique’: l’arbitrage Capital Expenditure (CapEx) vs Operational Expenses (OpEx).

Yves Leblond, Partner chez Ike Consulting



Résumons au plus simple ce que le “Cloud Computing” apporte : une possibilité de consommer des ressources informatiques (serveurs, stockage, applications,…) en mode ‘pay as you go’. Pour y parvenir, les moyens technologiques déployés par les fournisseurs sont complexes : ils conjuguent une industrialisation massive des systèmes informatiques et la mise en place d’architectures «scalables», dont les coûts d’exploitation évoluent bien moins vite que le nombre d’utilisateurs.

L’IT : CapEx vs OpEx Employer de tels services place ce nouvel usage de l’IT en mode OpEx. Et l’ancienne pratique, avec ses achats de serveurs, d’équipements, de licences relève principalement d’un mode CapEx, suivi de dépenses opérationnelles (monitoring, maintenance, consommation énergétique, etc.). De là, certains finissent en proclamant que le “pay as you go” est un meilleur modèle pour cette simple et unique raison : une moindre dépense initiale. On ne peut conclure ainsi que si on fait la confusion entre l’arbitrage «CapEx vs OpEx» et la simple structure du cash flow durant le projet. Car des investissements initiaux (serveurs, logiciels, développements logiciels spécifiques) peuvent se faire à crédit (des sociétés se spécialisent dans de tels financements). Et si on compare en termes actualisés les dépenses des deux approches, le mode «as a service» ne sera pas toujours le plus intéressant.

Nation Technology Xxxxxxxxxx

"Au final, se pose à nouveau la question de la valeur économique ajoutée à l’entreprise par chaque dépense IT" Les bénéfices du Cloud On devine bien que c’est sur d’autres points que les bénéfices financiers du Cloud Computing pourront se faire sentir : • Le simple taux d’utilisation de la ressource informatique. Un serveur ‘réel’ pèse à 100% de son coût initial et de maintenance, quel que soit l’usage effectif. Certains considèrent que pour un taux d’utilisation inférieur à 70%, il est plus intéressant d’employer des serveurs fournis “as a service”. • L’absence de coûts cachés. Ce qui est fourni “as a service” est parfaitement connu, pour un coût parfaitement déterminé. Jusqu’alors, même en mode outsourcing, il restait des coûts souvent oubliés dans le calcul du coût global (surface occupée, consommation énergétique, dépassements ‘imprévus’ de budget de maintenance, ...). • L’agilité fournie. Mobiliser de nombreuses ressources lors de pics d’activités (Noël dans le commerce, clôture comptables, etc.) sans surdimensionner ses capacités ; Pouvoir ajuster

le coût de la ressource IT à l’activité effective si on a un métier sensible aux évolutions conjoncturelles de l’économie ; Ou pour les plus entreprenants utiliser le «as a service» pour lancer des projets “expérimentaux sans lourds investissements. •L  a portée des engagements. Chaque personne qui a fait un achat ou un investissement dispendieux le sait bien : une fois réalisé, il est bien difficile de s’en défaire si on change de stratégie. En mode “pay as you go”, la portée de l’engagement est moindre. Attention toutefois aux clauses des contrats des offres «as a service» : certains exigent une durée minimale, d’autres contrôlent la réduction des capacités en y mettant un préavis important. Mais la portée de l’engagement sera toujours connue et négociée. •L  ’accès au capital. Surtout en cette période de relative tension économique, alors que les entreprises cherchent à renforcer leurs trésoreries, les ressources en capital ne sont pas extensibles, mais limitées par les investisseurs ou par les prêteurs.

Il y a une compétition dans l’entreprise pour l’allocation de ces capitaux qui iront plus volontiers vers des actifs générateurs de revenus plutôt qu’à des actifs morts. Pour de jeunes entreprises, ceci sera même un élément critique. Employer des solutions “pay as you go” permet d’alléger les tensions internes pour l’accès aux capitaux disponibles. • Rapprocher la dépense de son utilisation. Auparavant, les dépenses “d’investissement”, du fait de leur importance, étaient l’objet d’un examen approfondi par les services financiers avant d’être attribués aux services informatiques. Avec le passage en mode “pay as you go”, toute personne, selon son pouvoir de signature, «peut» mettre en œuvre une solution, puis intégrer ‘discrètement’ cette charge dans le résultat opérationnel de son entité. Un rôle critique des services IT dans l’univers du «Cloud Computing» sera de suivre cette nouvelle dépense informatique, d’éviter toute surconsommation ou mauvaise consommation, et de veiller au bon sfonctionnement d’ensemble.

Au final, se pose à nouveau la question de la valeur économique ajoutée à l’entreprise par chaque dépense IT. Contribue-telle réellement à accroître la valeur de l’entreprise (un atout essentiel ? au cœur de la création de valeur ? un rôle différentiateur fort ?) en créant un actif valorisable par un acquéreur éventuel ? Ou n’est-elle qu’une commodité, qui pouvant certes être «comptabilisée» comme un actif si elle résulte d’un investissement, ne fera pas l’objet d’une telle appréciation généreuse par des observateurs externes. En fait, la vraie révolution ‘financière’ apportée par le Cloud Computing est de poser avec pertinence cette question. En fournissant pour la première fois un «réel service complet», sous forme de commodité, le «cloud» amène chacun à définir en toute objectivité ce qui constitue son réel patrimoine ‘informatique’, au lieu de considérer une «capitalisation» par défaut. À chacun maintenant de choisir et de décider, en toute liberté de «sa» meilleure approche possible.

Yves Leblond



Nation Promotion

Centre financier

Luxembourg for Finance version 2.0 Sous l’impulsion de Fernand Grulms, son CEO, Luxembourg for Finance se tourne de plus en plus vers les réseaux sociaux. Chargée de promouvoir la place financière à l’étranger, l’association entend ainsi véhiculer une image dynamique de Luxembourg, en particulier auprès de la jeune génération. Le but est aussi d’inscrire la place dans la durée au travers de partenariats à l’étranger, mais aussi au Grand-Duché. Pour cela, l’asbl collabore notamment avec Luxembourg for Business, Paris Europlace et Madrid Centro Financiero. Lancée en 2008, l’agence de développement du centre financier est issue d’un partenariat entre acteurs publics et privés. L’initiative est coordonnée conjointement par le gouvernement luxembourgeois et l’association des professionnels du secteur financier (PROFIL) sous la présidence de Luc Frieden, actuel Ministre des Finances. «Notre mission est bien d’attirer l’attention sur le centre financier luxembourgeois, ses spécificités, ses atouts, ses possibilités de carrière et les produits et services financiers offerts par ses acteurs; et ce auprès de clients potentiels, d’investisseurs et d’organes de presse à l’étranger», explique Fernand Grulms. Tout cela pour accueillir de nouveaux contrats pour la place, mais aussi des nouveaux talents. Sur une année, environ dix évènements sont organisés à Luxembourg et à l’étranger, de préférence avec des relais locaux. Un tour asiatique est prévu chaque année, de même qu’au Moyen-Orient et un voyage en Amérique latine sera organisé tous les deux ans.

Une nouvelle image Présente sur le web depuis ses débuts, l’asbl alimente son site Internet, publie une newsletter et anime plusieurs communautés sur Facebook, Viadeo ou encore Linkedin dans un souci d’ouverture. Un blog est



aussi actuellement en cours d’élaboration. Au départ essentiellement destinée aux professionnels du monde financier, Luxembourg for Finance intéresse de plus en plus le grand public. «Dans un premier temps, nous étions plutôt dans une démarche de communication B2B, on a ensuite évolué pour prendre davantage le consommateur en considération. La récente crise financière nous a amenés à repenser notre rôle. Durant cette période, l’image de Luxembourg a souffert, il a été mis au pilori par certains de ses voisins, ce qui a causé un réel déficit d’image. Ensuite, les clients ont commencé à perdre confiance dans les opérateurs financiers, ce qui est un phénomène général, mais qui a également eu un impact sur l’image du pays. Cela nous a amenés à vouloir communiquer avec un public plus large», précise Fernand Grulms. se veut à présent une plate-forme d’informations et une source de renseignements pour qui s’intéresse à Luxembourg. Interviews, actualités du secteur, dossiers spéciaux, de nombreuses thématiques sont abordées avec une volonté de vulgarisation. «Un de nos buts pour 2011 va être d’aller plus loin dans cette direction et de créer une vraie communauté autour de Luxembourg for Finance. Notre ambition est aussi de parvenir à donner une image globale de

Luxembourg comme centre financier européen mais aussi mondial via nos différents canaux et de le mettre au même niveau que Paris ou New York», ajoute-t-il. Plusieurs zones géographiques vont ainsi être au cœur des préoccupations de l’association dans les mois à venir. «Nous avons un partenaire à Moscou qui va nous aider à organiser un séminaire sur différents thèmes financiers qui peuvent intéresser la communauté russe. Nous sommes également en train de négocier avec un partenaire potentiel à Dubaï. Notre réputation doit encore être renforcée et améliorée dans certains endroits. L’image que nous souhaitons véhiculer à l’étranger est celle d’un centre de compétences innovant pour l’Europe. Le pays ne manque certes pas d’atouts. On peut mentionner sa stabilité politique, sa situation géographique avantageuse, son ouverture d’esprit ou encore son multilinguisme», termine Fernand Grulms. Si l’association ne s’est pas fixé de zones géographiques à couvrir, ses priorités vont aux marchés potentiellement intéressants pour le Luxembourg. L’Arabie Saoudite où la Chambre de Commerce luxembourgeoise bénéficie déjà d’un partenariat avec une instance locale, l’Espagne, Singapour et la Chine seront particulièrement à l’étude. Florence Thibaut


"Notre ambition est aussi de parvenir à donner une image globale de Luxembourg comme centre financier européen mais aussi mondial via nos différents canaux et de le mettre au même niveau que Paris ou New York"

Fernand Grulms, CEO de Luxembourg for Finance



Nation Technology

Portfolio Management System

ABN AMRO Luxembourg to develop Independent Asset Managers market Mid-2009, ABN AMRO Luxembourg decided to launch the new Financial Professionals desk, dedicated to Independent Asset Managers (IAM). The head of Financial Professionals, Bert Boerman, chose Aqua Valley Solutions to provide tailored portfolio management software for his clients: B@nkvista.

© Photography Raoul Somers

An ambitious project

David Marthoz, Manager at Aqua Valley Solutions

Independent Asset Management is clearly the new business model for Wealth Management. ABN AMRO Luxembourg recognizes B@nkvista as a tool to structure and professionalize the management of the assets in this new fast-growing sector. Many IAM’s still use spreadsheets or manual input to follow and manage their accounts held with various banks. B@nkvista centralises all data from all clients in all depositary banks. Aqua Valley Solution has now finalised the implementation of B@nkvista with ABN AMRO Luxembourg.



ABN AMRO Luxembourg has recognised the importance and growth of the Independent Asset Manager business. This is why ABN AMRO has set up a dedicated team to serve these professionals. The offer consists of a competent and exclusive team of bankers to service these clients, state of the art reporting and trading tools and a solid execution and custody platform. The choice of software, including multicustodian reporting, gives ABN AMRO a leading position on the market. In order to provide high quality custody services to Independent Asset Managers, ABN AMRO Luxembourg needed to have a flexible Portfolio Management System offering multiple functionalities including an online access to account information and orders up to a multi custodian reporting capabilities engine. The solution uses pragmatic and user-friendly techniques and includes a powerful reporting tool and a

flexible account consolidation system and offers Straight Through Processing in the Order Management System. The solution permits a drill-down analysis of positions and strong capabilities in the portfolio modelling and rebalancing for one or many accounts. All of this and more is now available at ABN AMRO Luxembourg via the B@nkvista platform. Through a secured internet connection, Independent Asset Managers have a direct access to a dashboard. This first screen offers a global view of all accounts managed by the individual IAM at ABN AMRO Luxembourg. David Marthoz








Intensum is a European SAP consulting agency . We deliver business skills, project management and first-class SAP implementation competencies, focusing on Financial Supply Ch ain Management (FSCM & Treasury), Business Intelligence (BI, BO & Integrated Planning / BPC ), process improvement through innovative solutions (NetWeaver & XI/PI, Solution Manager) and . ERP. Our company philosophy has always focused on customer satisfaction with uncompromising integrity. We carry out solutions and services with high value and quality in the market. To meet our customers’ expectations, we ensure that our people generate enthusiasm and respond with excellent competencies in addressing our customers’ needs.

FinanceNation #2  

Grand Entretien : Marc Hoffman, CEO CBP Luxembourg

FinanceNation #2  

Grand Entretien : Marc Hoffman, CEO CBP Luxembourg