Brexit, Luxembourg, and Staffing

Now that Brexit negotiations have started, and following the announcements of a number of financial business looking to either establish or scale existing operations in Luxembourg, it seems timely to discuss our view on the impact of Brexit on staffing in Luxembourg a year on from the British referendum.

What is the impact so far?

Whilst 2017 continues to be a busy year for movement and growth in the Luxembourg recruitment market, it is difficult to assess the current impact on ease to hire financial and legal profiles in Luxembourg. Whilst Brexit is on everyone’s mind, most of our work today seems to be the result of continued economic development and the extremely strong and stable positioning of Luxembourg in the global financial market. Over the course of this decade we have seen similar “bubbles” of demand, for example the implementation of AIFMD, that have eventually led to sustained hiring patterns once the uncertainty of impact had died down. We believe that we are seeing what we believe to be the beginning of the “Brexit-bubble”, and whilst the impact may be minimal so far, we are preparing for a surge in requirement during the next 12 – 18 months.

More diverse roles?

The many questions surrounding Brexit, especially around the free movement of labour and financial passporting, clearly have implications for the Luxembourg recruitment market. Towards the end of 2016 Greenfield was contacted by many of our existing asset management clients looking to discuss the probability of sourcing a wider variety of candidates here in Luxembourg for roles that traditionally would have been more “London-centric”. Concurrently a great interest has been shown in the possibility of sourcing senior governance profiles and the ease of attracting and relocating professionals to Luxembourg.

During the first half of 2017 we have indeed been involved in the recruitment of several front-office roles for asset managers where the roles previously would have been based in the UK, and are currently involved in two projects for alternative fund houses establishing their first European operations – both have commented that a few years ago the UK would have been the preferred destination. Alongside this we have been discussing with our London-based clients the likelihood of expansion in the Grand Duchy and are expecting further mandates towards the end of the year.

In other areas of financial services (for example the delivery of middle and back office functions) the situation is still a little unclear. Branches and subsidiaries of large multinational (“non-UK”) banks are making provisions which appear to entail expanding existing operations in existing designated centres, however given the strength of existing market infrastructure there is no reason why Luxembourg can’t compete on this front too.

What will the future bring?

As we get more clarity on how the discussions in Brussels are progressing, and the more concrete negotiating positions of each party to the talks, we are sure that we will see more financial businesses and institutions opening their doors in Luxembourg. This will of course have a knock-on effect for all service providers here in Luxembourg – an area that is already phenomenally busy and looks only set to grow.

When asked, Jens Hoellermann of Intabulis, a leading provider of Independent Directorships to the financial industry, commented:

“According to media coverage, U.S. private equity funds Blackstone and Carlyle Group are establishing passporting rights in Luxembourg to be able to do business in the European Union after Brexit. These moves are most likely less about moving people but more to secure doing business going forward, the right to market and distribute funds, as under current regulation, funds from outside the European Union are required to register separately in each country where they want to market. Other asset managers like Swedish EQT have also made the decision to launch any future funds in Luxembourg. There are also rumors of many others that shall have chosen Luxembourg already. And when the big ones move, the small and medium players will follow. A partner of a well-known Luxembourgish law firm recently commented that the alternative industry in the Grand-Duchy will grow by 10 times within the next five years.

Although all such PE houses already have some staff in Luxembourg, they all might need to hire more people to cope with the increased workload of managing funds. The same applies to all kinds of service providers, like law firms, administrative and depositary agents and the big 4.

However, asset managers are to be considered being at the top of the food chain, which potentially could lead to problems for the service sector. Although, Luxembourg has a good talent pool, the increased demand for knowledge and experience might not be covered easily.

In addition to the PE industry moving to Luxembourg, a few London-based insurance firms and financial technology companies have announced relocating to the Grand-Duchy as well.”

Will there be salary inflation?

In the run-up to the 2008 financial crisis wage inflation was a serious issue in Luxembourg. Thankfully with reasonable inflation, and periodic wage indexations, we have not seen salaries spiral over recent years. Whilst there is always the prospect of wage inflation in markets where professional resources are scarce this has not demonstrated itself yet. Although the unemployment rate is currently at a low (circa. 6%) due to an increase in resident employment, the actual population of Luxembourg seems to be growing in line with employment demand. Hopefully salaries will continue to increase in line with inflation and not based upon other dynamics. Indeed, rather than wage inflation, Brexit could well spur an increase in population as the financial industry grows. This would act as a stabilising factor for employment costs in Luxembourg, which in turn would also maintain Luxembourg as an attractive place to do business from.

Brexit is an opportunity for us all

In conclusion, Brexit is an amazing opportunity for Luxembourg and whilst it will undoubtedly present challenges for staffing and resourcing, Brexit will lead to an increase in activity in the recruitment market and the provision of exciting opportunities and career development for those active in the financial sector.

(This article was written by Christopher Purdy and originally published on LinkedIn)