Agefi Luxembourg - octobre 2024

AGEFI Luxembourg 18 Octobre 2024 Wealthmanagement / Banques By Axel FOUSSE, Senior Associate | Portfolio Management & Stéphane DERVAUX, Associate Investment Manager at MCSquare I n the rapidly evolving financial land- scape, wealthtechhas emerged as a cornerstone ofmodernwealthmana- gement. By leveraging cutting-edge techno- logies, it has transformedhowwealth managers, clients, and fundmanagers interact, particularly in accessing traditionally illiquid invest- ments such as private equity (PE) andventure ca- pital (VC).As Luxembourg continues to cement its posi- tion as a global financial hub, these technologies play a critical role in reshaping the local investment envi- ronment,making alternative investments more accessible and attractive to a broader audience. Thewealthtech revolution Wealthtech, a fusion of wealth management and technology,hasrevolutionizedtheindustrybyintro- ducing digital platforms that automate and stream- line various processes. These platforms rely on advanced algorithms, artificial intelligence (AI), and machinelearning(ML)todeliverpersonalizedfinan- cial advice, optimizeportfolios, andmanage risks ef- fectively. By enhancing data analysis capabilities, wealth managers can now gain valuable insights to informtheir investment decisions. For instance, predictive analytics canuncover illiquid investment opportunities alignedwith clients’ finan- cialgoalsandriskprofiles,acriticaladvantageinnav- igating the complexities illiquid markets. This is particularlyrelevantinLuxembourg,wheresophisti- cated investors are increasingly seeking diversified portfolios that include alternative investments. Democratizing access to investments Historically, private equity and venture capital have been the domain of institutional investors and ultra- high-net-worthindividuals.Highentrybarriers,such as substantial minimum investment amounts and strict liquidity requirements, excluded smaller in- vestors fromthese lucrative opportunities. However, wealthtech platforms are transforming this dynamic by lowering these barriers, providing more flexible andaccessiblesolutionsforawiderrangeofinvestors. At the same time, the introduction of the European Long-Term Investment Fund (ELTIF) 2.0 directive in January 2024 marks a significant step in this democ- ratizationprocess.ELTIF2.0reducestheminimumin- vestment thresholdandexpands the rangeof eligible assets, aligning seamlessly with advancements in wealthtech. This regulatory shift empowers wealthtech platforms to integrate ELTIF 2.0 frame- works, enabling retail investors to participate in PE and VC markets that were previously beyond their reach. By bridging the gap between regulatory inno- vations and technological advancements, wealthtech is fostering amore inclusive financial ecosystem. As private equity becomes more accessible, capital flows into the asset class are expected to rise, along withthenumberofplayersandproducts.Thisexpan- sionraises concerns aboutwhether the strongperfor- mance of recent yearsmight weaken. Larger inflows coulddilutereturnsandleadtomoregeneralized,less specialized funds. However, increased competition for promising companies could drive higher valua- tionsandpotentiallyboostreturns.Inanycase,private equitycontinuestooffervastopportunities,especially ingrowthcapital and the fundingof thegreen transi- tion, which remains in its early stages. Practical applications inLuxembourg InLuxembourg, crowdfundingplatforms androbo- advisors specializing in alternative investments ex- emplifyhowwealthtech is reshaping the investment landscape. Crowdfunding platforms allow individ- ual investors to participate in non-listed investment opportunities with smaller capital commitments, whilerobo-advisorsleveragealgorithmstoconstruct diversifiedportfolios that include PE andVCassets. These innovations cater to the growing demand for access to alternative investment strategies, reflecting Luxembourg’s role as a leader in embracing newfi- nancial technologies. The ELTIF 2.0 regulation is particularly relevant for Luxembourg, given the country’s significant role in the European investment fund industry. As more wealthtech platforms adopt ELTIF 2.0 standards, Luxembourg is well-posi- tioned to attract a broader base of in- vestors looking for exposure to alternative assetswithout the tradi- tionalconstraintsofhighentrycosts. While future growth prospects for privateequityremainstrong,thesec- torfaceskeychallenges.Thereis a clear opportunity to broaden access to these assets by reachingawiderin- vestor base. This re- quires not only developingsuitablein- vestment vehicles but also streamlining dis- tribution and processes. Additionally, the sector must navigate increas- ingly complex regulations. To address these chal- lenges, technological innovation is crucial. The LPEA ismappingout technologies that can support private equity’s transformation and will facilitate future col- laborations between industryplayers. Operational efficiency and transparency Beyond accessibility, wealthtech also enhances oper- ational efficiency for investment funds and wealth managers. Automated processes reduce administra- tive burdens and operational costs, enabling profes- sionals to focus onstrategic investment decisions and research.Forexample,wealthtechplatformsautomate clientonboarding,riskprofiling,andreporting,which helps reduce human error and accelerate service de- livery.AI can streamlinemiddle andback-officepro- cesses by automating compliance tasks and enhancingmonitoring efforts tomanage risk. For example, reviewingmarketingmaterial or corre- spondence,traditionallytime-consumingforfinancial advisors, can be scaled with AI. Automated content reviewshelpeliminatebottlenecks,enablingadvisors to remain compliantwhile saving time and reducing costs, without needing to expand staff significantly. This operational efficiencycanbea critical advantage for Luxembourg-based firms that must navigate in- creasinglycomplexregulatoryenvironments,suchas UCITS andAIFMD frameworks. Furthermore, advanced reporting tools andportfolio managementplatformsprovidegreatertransparency intoinvestmentperformance.Thisincreasedvisibility buildsinvestortrustandfacilitatessmoothercommu- nicationbetweenfundmanagersandtheirclients.For Luxembourg, acountry that prides itself onrobust fi- nancialregulationandinvestorprotection,thesetrans- parency enhancements resonate well with its commitment tomaintaining a leadingposition in the global financial landscape. Enhancing investment decision-makingwithAI andML TheuseofAIandMLinwealthtechplatformsistrans- forminghowinvestmentopportunitiesareidentified andevaluated.Thesetechnologiesallowwealthman- agerstodetecttrendsanduncoverinvestmentoppor- tunities that may not be immediately apparent through traditional analysis. For instance, AI-driven modelscanassessvastdatasetstopredictfuturemar- ket movements or identify undervalued assets in the PE andVCspace. For Luxembourg-based fundmanagers, this sophis- ticatedlevelofdataanalysispresentsopportunitiesto makemorestrategicandprofitableinvestments,ben- efiting both funds and their investors.AsAI andML continuetoevolve,theirintegrationintowealthman- agement platforms will undoubtedly become a key differentiator forfirms looking to stayahead inan in- creasingly competitivemarket. AIoffersnumerousbenefitssuchasautomation,cost- efficiency, and reducederrors,while appealing to in- vestorsthroughease-of-useandconstantconnectivity. However, AI is seen as a tool to enhance human ad- visors rather than replace them. Trust remains key, withnearlyhalfofinvestorsvaluingthetrustedadvice advisors provide. A hybrid model, blendingAI and humanexpertise,isexpectedtodominate,particularly in research andportfoliomanagement. Conclusion Wealthtech is not just a trend—it is a transformative force that is reshaping the future of wealth manage- ment and alternative investments. By lowering entry barriers and providing innovative solutions, wealthtechplatformsenablewealthmanagerstooffer clients diversified portfolios with optimized returns. As these technologies continue to advance, they will further enhance the accessibilityandattractiveness of private equity and venture capital investments to a broader range of investors. For Luxembourg, a global leader in investment funds, the integration of financial technologies with new regulatory frameworks like ELTIF 2.0 repre- sents a significant step towardamore inclusive, effi- cient, and transparent financial landscape. Investment funds stand to benefit from these inno- vations, which not only improve operational effi- ciency but also expand their investor base and enhancedecision-makingcapabilities.Aswealthtech continues to evolve, Luxembourg’s financial sector is well-positioned to lead the charge in this new era of investment management. Thisseamlessblendofregulationandtechnologysig- nals abright future for bothwealthmanagers and in- vestors, making Luxembourg a key player in the globalwealthtech revolution. Wealthtech: ANew Era in Illiquid Investment ByNicolasPRUDENCIO,ManagingDirectorandBryan HALIN, Financial Services Consultant at Sia Partners L uxembourg’s insurance industry has made noticeable strides in enhancing its digital services, but it continues to fall behind leading European countries like the Netherlands, France, and Belgium. As competition in the global digital landscape intensifies, local insurers must increase their investments in digital technologies to remain competitive andmeet evolving cus- tomer expectations. Significant improvements, but still laggingbehind A comprehensive report evaluated 142 insurance companies across 15 countries, including four based in Luxembourg. The assessment, conducted by Sia Partners, a global strategy and management consul- ting firm, focused on insurers offering home and car insurance,analyzingmorethan300customerjourneys carried out via smartphones. Key areas examined includedhoweasilypotentialclientscouldaccesspro- duct information, start claims processes, run simula- tions,andcompletesubscriptionsonline.Additionally, the study measured overall user experience, placing emphasis on accessibility and, increasingly, Environ- mental, Social, andGovernance (ESG) criteria. Luxembourg, though showing improvement, remains behind its Europeanpeers. The country saw positivedevelopmentsinareaslikedigitalsimulation processes and general user experience, but still trails incomparisontothetopperformers.Australia,which claimedfirstplaceglobally,overtooktheNetherlands, a previous leader that continues to excel in specific areas like insurance simulation. Luxembourg’sriseinrankingscanpartlybeattributed to the inclusion of additional countries in this year’s study,suchasItaly,Canada,andChina.Nonetheless, the report highlights that Luxembourg needs to strengthen its digital infrastructure to keeppacewith its competitors. Baloise to leadLuxembourg’smarket In Luxembourg, Baloise remains the top performer for digital insurance services, particularly excelling in simulation and subscription processes. Baloise has maintaineditspositionbyprovidingaseamlessexpe- rience for customers looking toobtainhomeor car in- suranceonline. This strongdigital presencehasmade it the leader inLuxembourg's insurancemarket. Foyer, which came in second place, has made its mark through notable efforts in ESG, as well as a solid overall user experience. The insurer has demonstrated a commitment to sustainability and social responsibility, which has enhanced its repu- tation andappeal to customerswhoprioritize these values. AXALuxembourg, meanwhile, has shown signifi- cant progress, especially in the home insurance journey. It has introduced features that allow non- clients to begin the subscription process online— an advancement that propelledAXA to thirdplace, surpassing Lalux. This development, combined withdetailedproduct information available online, has made AXA a more formidable competitor in Luxembourg's digital insurance landscape. However, Lalux, despite lagging in some digital innovations, remains a strong contender and is still competing closely with the top three insurers. Competition spurs innovation The Luxembourg market is relatively small, with limited investment capacities compared to larger European markets. This presents challenges for local insurers, particularly when competing with well-establishedplayers fromBelgiumandFrance. These foreign insurers can leverage their larger resources and cross-border operations tooffermore comprehensive services in Luxembourg. While this creates a competitive disadvantage, it also pushes Luxembourgish insurers to innovate. The need to keep up with international standards has led to improvements indigital services, forcing local companies to rethink their customer journeys and adopt new technologies. ThisdynamichaspromptedinsurersinLuxembourg toenhancetheirofferingsinwaysthatmightnothave been possiblewithout external pressure. Looking forward: the need for continuous digital innovation For Luxembourg’s insurance sector to remain com- petitive in the future, ongoing investment in digital infrastructure is crucial. The study highlights the importanceoffocusingontheend-to-enddigitalcus- tomer journey, from initial information gathering to completing the insurance purchase. Countries like Australia, theNetherlands, and theUnitedKingdom offervaluablelessonsinthisregard,astheirinsurance markets provide user-friendly, streamlined online experiencesthatincludeeasy-to-usepricesimulations and seamless claims processes. Additionally, embracing ESG factors could become an even greater differentiator in the insurance sector movingforward,ascustomersincreasinglyseekcom- panies with a strong commitment to environmental andsocialissues.Byintegratingsuchvaluesintotheir digital strategies, Luxembourgish insurers can enhance their market positioningwhile appealing to a broader audience. APromising, yet challenging path ahead WhileLuxembourghasmadesignificantprogressin improving its digital insurance services, there is still much to do. The local market has moved up in ran- kings thanks to efforts to improve user experience and simulate digital processes more efficiently. However, the competition from neighboring coun- triesandthelimitationsofLuxembourg’ssmallmar- ket size continue to pose challenges. To remain rele- vant and competitive, Luxembourg’s insurers must prioritizedigitaltransformationandcustomer-centric innovations. By investing in cutting-edge technolo- gies and learning fromglobal leaders indigital insu- rance, Luxembourg can continue improving its cus- tomer journey and solidify its place in the evolving digital insurance landscape. Luxembourg’s Digital Insurance improves, but still trails behind neighbors Australia TheNetherlands France UnitedKingdom Belgium Ireland Singapore HongKong Luxembourg USA 74.52 66.14 62.70 62.45 60.45 59.86 52.01 40.31 47.57 43.71 Average scores per country (top 10) Total score Bâloise Foyer AXA Lalux