Luxembourg administers hedge funds and funds of hedge funds with combined assets representing around 10% of the global hedge fund industry.

With the introduction of the Specialized Investment Fund (SIF) Law in February 2007, there is strong growth in this sector; Ernst & Young expects that this growth will be sustained going forward.

On top of this, with continued convergence between traditional and alternative products, Ernst & Young also sees strong growth in the so called “sophisticated UCITS” segment; these sophisticated UCITS are in many cases replicating certain types of hedge fund strategies.

On the global front, Ernst & Young’s 2007 Global Hedge Fund Survey – Navigating New Complexities identified three key challenges: managing operational risk, attracting and retaining talent, and managing the growth of the business. Finding, hiring and retaining the "right" people remains the key theme in attempting to deal with all these challenges.

According to Ernst & Young, three key trends also stand out. Firstly, institutionalization of the hedge fund industry continues, both in terms of the way hedge fund managers organize their own operations and in terms of the investor base.

Secondly hedge funds are diversifying into such areas as private equity and real estate.

Thirdly, in terms of asset flows, the big are continuing to get bigger; it is estimated that around 5% of the total hedge fund managers manage 80% of the global hedge fund assets.

Ernst & Young also welcomes the recent development of industry best practice standards which aim to address areas of concern such as disclosure, valuation, risk management, fund governance and shareholder conduct.

Launching the guide, Michael Ferguson, E&Y Asset Management Leader observed that: “The trends and developments we see in the hedge fund industry are indicative of a maturing industry."

"Luxembourg is in an excellent position to benefit from this, offering flexible onshore solutions for structuring and distributing hedge funds. This guide is one of our contributions to the promotion of Luxembourg as a leading hedge fund centre.”