How Luxembourg supports Growth of the Investment Fund Industry: Fundsquare, a success Story

For Carlos Antunes Roberto, Senior Manager of Business Development and Relationship at Fundsquare, Luxembourg is much more than leading country in the industry of investment funds. It was precisely on this and other topics that a conversation was developed with Ponto de Vista Magazine. Find out which ones.

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Founded in 2013 in Luxembourg, Fundsquare aims to become the unique infrastructure in the world market, facilitating the distribution of funds among interested parties. Carlos, as you are responsible for the Portuguese market, how has the company consolidated its presence in Portugal, in order to respond to the biggest concerns of industry players?
Since the creation of the company under CCLux in 1997 and its transition into Fundsquare in 2013, the wholly owned subsidiary of the Luxembourg Stock Exchange has stayed close to its origins. Fundsquare has for objective to expand our international service offering to cover all European fund markets but also Latin America and Asia. The Portuguese market is a natural fit when we speak of fund distribution for Fundsquare, bearing in bind its international openness. Portugal is an important market for Luxembourg domiciled funds distribution, considering that cross border registrations in 2020 increased by 27% compared to previous years reaching 70% of top cross-border management groups distribution. Currently, 50 top cross-border management groups distribute their funds in Portugal, should it be their Luxemburgish or Irish domiciled funds. Fundsquare has been increasingly active in Portugal for the last four years. We make it a point to connect with local players and stakeholders within the fund ecosystem. Additionally, we have entered discussions with the supervisory bodies and associations: the CMVM, ASF, as well as APB and APFIPP to understand local needs and to better ascertain how our service offering could benefit the market. In terms of Portuguese asset managers and funds, Fundsquare has been providing services to those with an established presence in Luxembourg, while supporting them in their fund registration for passporting processes to other EU jurisdictions including Portugal, of course.

Fundsquare helps professionals address the current and future challenges of distributing international funds. What challenges are we talking about?
In the long list of keys challenges, regulatory and data management are top-of-mind. With the arrival of environmental, social and governance (ESG) factors, embeded into the recently published EU Sustainable Finance Disclosure Regulation and the EU Taxonomy Regulation, together with GDPR, alternative assets and cryptocurrency investments, National Financial Supervisory Authorities are seen as becoming more involved and in the process of developing, implementing and enforcing new regulations and frameworks to encompass the need for full transparency. The asset management industry finds itself in a position where one cannot afford to stand still. Decisions and actions need to be swiftly taken – and, in some cases, anticipated – by industry players in order to satisfy these new ever-evolving requirements and all need to pass by efficient management and use of data.  As the industry moves ahead, the players with the best tools and processes to generate, manage, distribute, control, and oversee processes around data management, will be those who gain in competitive advantage and maintain the test of time. Fundsquare is a fund market utility offering a flexible response to the entire distribution chain. Our added value services cover Regulatory Compliance and Information Management for fund managers, all related ecosystem entities, including their service providers. At Fundsquare level we streamline the orchestration of all types of data with real-time digitalized solutions across the product lifecycle, from inception to filing allowing for a quick product-to-market, better risk mitigation and enhanced oversight. Through our proprietary tool, FundLifeCycle, clients can make sure that their data and regulatory reporting are compliant with and distributed to financial National and Supranational Regulatory Authorities as well as their data and document dissemination that they manage or outsource to third-party service providers. Following this route, in addition to handling today the collection and dissemination of EPT/EMT data and templates, we are also getting ready for the new EEC template (European ESG Template), having internal experts being part of the Findatex working group. Fundsquare is truly establishing a data exchange Hub for all such information(EPT/EMT/EEC) to serve the asset managers world for their own funds data dissemination but also particularyl for their underlying third party collection needs, especially when it comes to the new EET template, the challenge is a dual one.

Clearly, at the origin of Fundsquare are the growing economic and regulatory pressures, having encouraged the creation of a unified mechanism that would reduce costs and risks. Is it legitimate to say that these gaps are currently being filled? In what way?
Fundsquare does mutualize the asset managers distribution & oversight costs as we sit at the center of the fund ecosystem, enabling the communication between fund promoters, all types of service providers, financial supervisory authorities and investors in a streamlined and cost-effective manner. Knowing and tracking how and when asset managers’ data is being sent to either the National Competent Authorities or distribution platforms is essential in terms of overall  governance. Bridging the regulatory reporting and the fund information services is the key success factor to keep the whole chain of data updated, accurate and compliant. Through our proprietary tool, FundLifeCycle, we provide our clients with proper oversight on their activities and reportings as they remain in control of their own data including the checks on the data integration and accuracy at main DataVendors end (Loopback services). We do serve a high percentage of today’s top 100 AM at both regulatory and information services. We are proud of their trust and engagement with us. Currently 100% of regulatory reporting for Luxembourg domiciled funds is managed by Fundsquare.

To what extent is it possible to compare the Portuguese market with that of Luxembourg? What would you consider when highlighting the competitive advantages of both countries?
The success of the Luxembourg financial industry has not only benefited Luxembourg but Europe more generally. Luxembourg’s leading position in the investment fund area is a success story of a European investment product, the UCITS. The key sucess factor of Luxembourg fund distribution capabilities through its passporting process to over 70 countries while Portugal is distributing about 12 times more foreign funds than local ones. Portugal has been distributing over 4,175 foreign funds, with a yearly increase of over 10% year after year. On the other hand, the number of Portuguese domiciled funds (both UCITS and AIF) has recently slightly reduced due to local providers offering reorganisation although globally the investments are growing especially in the pension and unit linked sectors. In digital terms, I believe both countries are making a huge effort and investing a lot in innovation, fintechs and talent attraction.

In a more general context, can we consider that today Luxembourg is a small “large” country in Europe? Why?
Benefitting from a politically and economically stable environment, Luxembourg also enjoys an extremely qualified workforce and is historically recognised in its proactive and effecient role adopting or implementing European financial regulations. Luxembourg is not only an agile financial marketplace, but also a highly business oriented one. Both Luxembourgish government and financial supervisory authorities are recognised to be real facilitators for business development. Luxembourg remains by far the pre-eminent fund centre in the EU despite strong competition from other jurisdictions. Luxembourg is continously attracting new promoters and financial institutions due to its excellent reputation in serving cross-border investment fund products.

Finally, how do you see the future of Fundsquare, namely in the Portuguese market?
Fundsquare Information Services datahub covers all the requirements of clients and is currently being expanded to include a comprehensive database of all European funds. Portugal like other markets does share the main industry challenges, as certainly the regulatory compliance achievement, the cost pressures, the competition, the visibility, the digitalisation, the ESG discussion and for sure, the data management as well as the governance oversight. Data sourcing and publication are today the key elements Fundsquare does bring to the Portuguese market being an active distributor of Luxembourg domiciled funds. Fundsquare will accompany the clients in its global but also specific needs. We are increasing our accessibility to European National Competent Authorities to facilitate AIF/M reporting and passporting thereby replicating this great success outside of Luxembourg. We continue to mutualize the asset manager distribution and oversight costs for collection, management and dissemination of fund information (documents, static and dynamic data) through standardized tools and highly automated processes.