In an analysis of the pros and cons of hedge fund domicile and listing by Crédit Agricole-Caisse d’Epargne Investor Services (CACEIS), Luxembourg's decision in July 2004 to allow the listing of offshore hedge funds has made it possible for the jurisdiction to attract offshore funds and to compete on a level basis with Dublin, removing a barrier that has acted as a handicap to the growth of the hedge fund sector in the Duchy in the past.

One major advantage of this decision is that offshore fund promoters often choose their administrator and service providers in the country where they have their listing for the convenience of having the stock exchange, the administrator and the custodian in the same place.

However, CACEIS believes that Dublin and Luxembourg are unlikely to target the same customers, as asset managers from English-speaking countries, notably the United States, will prefer to go through Dublin. Luxembourg meanwhile, is more likely to benefit from growing demand for hedge funds among investors in France, Germany and the Netherlands.

The well regulated environments of Luxembourg and Dublin also mean that both jurisdictions will see continued demand from institutional investors who must adhere to stricter risk profiles.

While Luxembourg is a relative newcomer as a hedge fund domicile, it has nevertheless seen rapid growth in alternative investment fund assets, primarily hedge funds, which more than doubled during 2004 to reach US$18.7 billion by the end of the year.

Total net assets in US dollar terms for all collective investment funds domiciled in Luxembourg recorded growth of 25% over the year to 31 December 2004, according to Fitzrovia’s eleventh annual Luxembourg Fund Encyclopaedia. The total number of funds and subfunds rose from 7,444 to 7,777 during the twelve month period as funds industry assets topped $1.5 trillion.