ALFI conference: Pension reform, growth markets, getting the “millennial” generation to save and the shift to passive funds were examined during the fund industry’s big autumn confab.
Things are looking good for the Luxembourg fund industry and its signature UCITS product. “The future of UCITS is very promising indeed,” said Lieven Debruyne of the Hong Kong Investment Funds Association speaking in his introduction to the 23-24 September ALFI Global Distribution Conference.
The outlook is less rosy for our state pensions, though. We are going to get less, have to work more and pay more than we are being promised.
There has been more than 10% growth in Luxembourg-based fund assets so far this year. Relationships around the world are improving, especially with China, and Australia, Brazil and Mexico have been identified as new priority targets.
The new government is committed to the fund industry, with Luxembourg’s finance minister, Pierre Gramegna, telling the ALFI conference in Kirchberg that he had no plans to “change a success story.” He said the target was to maintain the country’s AAA credit rating, but that the government “had not even considered” the idea of raising the investment fund subscription tax to reduce state debt.
Gramegna also pledged to “fight” potentially harmful regulations on behalf of the industry, particularly the proposed EU financial transaction tax. He confirmed too that discussions are on-going about a law governing real estate investment trusts.
Luxembourg pension reform
There was more good news in a discussion about pensions. Over the last 150 years people are living an average of 2.5 years longer every decade and there is no sign this trend is tailing off. We are living longer, but the retirement age has stayed the same resulting in society “paying healthy people not to work for 20-25 years”, commented Nick Sherry of Citigroup.
So what does this mean in Luxembourg? We have a particularly generous system here, with people often ending up with a pension at 80-100% of their average lifetime earnings.
According to the president of the National Pension Insurance Fund, Robert Kieffer, likely outgoings from the fund are over twice the level of expected income. He pointed to three options: a higher retirement age, lower pensions and higher contributions.
There were more predictions from Theresa Hamacher, the president of the US fund association NICSA. There are concerns that the new generation of “millennials” coming into the workforce may be less willing to save than previous generations. She suggested new products and sales techniques might be required for those who have grown up with the Amazon retail experience.
Hamacher also foresees a merger between traditional and hedge fund managers as they seek effective ways to make safe returns. She additionally has concerns about exchange traded and index tracker funds. These low fee products now account for one-third of all assets in the US, but she worries that they are becoming too complex and that they fail to provide balance to the market.
But as the head of the organisation representing asset managers being challenged by the move to passive funds, you might expect her to say this.