European political leaders want more defence and infrastructure spending. There is an ageing population. People must provide more for their own retirement via investment; European economies require more capital. This affects fund management. This news service went to Luxembourg last week to find out what the industry is concerned about.

Expected large European public spending increases on defence and infrastructure, coupled with the EU’s drive to boost capital markets, were front of mind when the fund management sector gathered for an annual conference in Luxembourg last week.

ALFI (Association of the Luxembourg Fund Industry) set out what the jurisdiction’s funds sector – already a major hub for cross-border UCITS entities – can gain if policymakers push through reforms.

Geopolitics and economic challenges, coming in the form of US tariff hikes, a need to ramp up European defence spending, and tackle pressures from an ageing population, have put investments and capital markets centre stage. 

Europe – in contrast to the US – has much unfilled potential in terms of putting liquid savings to work in stocks and private markets. For example, a 2025 report by Observatoire de L’Epargne Européenne, on behalf of the AFG, the Employee and Retirement Savings Commission, notes that European households’ direct holdings of stocks are in single digits – just 6 per cent of total financial assets in the eurozone. Overall, the average holding of stocks by households in the euro area is 21 per cent of financial assets. There is a lot of headroom.

Against such a background, Luxembourg is more important than ever as a centre for cross-border investment and centre of expertise, Gilles Roth, Luxembourg Minister of Finance, told conference attendees. 

“Today, the EU needs to take bold measures to take household savings into capital markets,” he said. Roth referred to the European Commission’s Savings and Investments Union strategy, issued earlier in March. The Commission wants to encourage EU member states to introduce Investment Savings Accounts, remove tax barriers impeding EU cross-border investment, simplify rules and remove tax biases in favour of debt at the expense of equities. 

Roth – and several other speakers at the ALFI conference – cautioned against EU attempts to over-centralise regulatory control of the European savings and investment industry. This publication noticed a tension between a desire to simplify and unify this sector and desire to preserve regulatory autonomy in centres such as Luxembourg.

UCITS funds, many of which are registered in Luxembourg, are sold in more than 80 countries. “We must strengthen our ties with emerging markets,” Roth continued. Luxembourg must get stronger as an international financial “gateway” into continental Europe, he said. 

As reported here, the ALFI conference was reminded that assets under management located in Luxembourg experienced strong growth last year, increasing by 11.5 per cent to exceed €7.3 trillion ($7.87 trillion) in mutual funds. Meanwhile, alternative investment funds (AIFs) now represent one-third of Luxembourg’s fund industry.

Serge Weyland, CEO of ALFI, said the association broadly welcomed the EU’s savings and investment union strategy. “Pillar two” and “pillar three” pensions are “completely under-developed” in Europe, he said. (Pillar two pensions are occupational plans; pillar three pensions are private plans, such as individual accounts). Such retirement structures are important for “deep capital markets,” Weyland said.

The Commission has noticed that some member states retain certain protectionist measures for financial services, he said. (Without mentioning countries by name, Weyland alluded to countries, for example France, in areas such as life insurance.)

However, Weyland said he was concerned about the Commission’s narrative on “supervision.” Weyland said he is fine with a desire for regulatory “convergence” but said there is value in recognising the value of competition between regulatory expertise in specific cases, such as Luxembourg’s CSSF and Germany’s Bafin. “We should build on that knowledge and expertise,” he said. “Let’s not fix something that’s not broken.”

Weyland said Europe is home to about €20 trillion of fund assets, with €5 trillion exported out of Europe. “That is a huge success for Europe,” Weyland said. (See this interview with Weyland, last year.)

Active ETFs and other trends
Elsewhere, the conference heard comments about the continued rise of “active exchange-traded funds.” Taking effect from January this year, Luxembourg has axed the subscription tax for active ETFs, putting them on the same basis as passive ETFs.

(An active ETF is managed by professionals who actively select and manage the fund's holdings. They try to beat a benchmark index or achieve a specific investment objective, rather than simply replicating an index.)

“ETFs have become giants in the asset management industry. They have a proven track record in delivering what they said they would do,” Michael Mohr, global head of Xtrackers Products, DWS Investment, told the conference in a panel discussion. The market is vast: there are more than 3,300 ETFs listed in Europe, for example.

Mohr said that ETFs can solve the problem of more traditional funds not moving fast enough to capture a developing trend.

Asked about whether ETFs are “cannibalising” other parts of the funds market, Mohr disagreed, saying that ETFs address different types of client, and their needs.

Europe’s challenges
The Observatoire de L’Epargne Européenne report, mentioned above, examines what’s at stake: “Europe must mobilise its vast surplus of savings: the surplus of European private savings, companies and households combined, represents more than 4 per cent of the EU’s gross domestic product in 2023. In balance, after deducting public deficits, the EU’s financing capacity reaches almost 2 per cent of GDP, and more than €300 billion. This is the annual flow of European savings currently invested in the rest of the world.

“In addition to bank financing, the investment of private savings in the economy via financial markets is a powerful lever for the growth and valuation of companies. Nevertheless, the level of medium/long-term savings in the EU is far too low. Indeed, it accounts for 90 per cent of GDP, as compared to 310 per cent of GDP in the United States,” it added.