Following the trajectory upward

Following the trajectory upward

Jervis Smith, Country Manager, Vistra Luxembourg, talks about his company’s success since entering the Luxembourg market in 2007 and creating a niche for itself in the financial services.


You have been country manager since September 2019, bringing over 35 years of banking and finance experience to Vistra. Would you give us a background of your previous professional experiences: how they led you to work at Vistra, and how did these previous experiences inform your role as a managing director?

Until I joined Vistra, just over two years ago, I was a banker. I started my career in the United Kingdom, which is where I was born. After about 12 years, I got the itch to work overseas, and so I joined an organization called Citibank and spent the next 25 years working for them. During the course of my time at Citigroup, I worked in the Middle East, New York, Hong Kong, London and, lastly, in Luxembourg. Consequently, I had a very good picture, not just of diverse cultures and differing domestic business styles, but also of how international trade and investment actually work in practice. Obviously, in a 25-year career you see fads, things that come and go, whims, like the dotcom bubble in the early 2000s, or the credit crisis in 2008. You get a picture of how the economy experiences little waves, and where the connectivity of global trade is becoming increasingly frequent. That was how I started to notice the importance of Luxembourgprobably about 20 years agowhen the mutual fund industry started to internationalize.

Up until that point, investment was a largely domestic business. Then, the EU passed a directive allowing you to passport mutual funds around the European Union. The secret of Luxembourg’s success in the financial world was really that they were the first country that passed into domestic legislation the EU directive allowing firms to passport funds. Hence, they got a head start over all the other countries at becoming a center of excellence for passportable funds. Of course, like any business, whether it is a corporation or an investment company, it is all about scale. The more investors you can get into a fund, the more profitable that fund will be for the person who manages it. Thus, firms were able to passport a fund around the EU, and then, subsequently, the passport extended into Asia and Latin America.

We now have over 75 countries that accept the Luxembourg UCITS (Undertaking for the Collective Investment in Transferable Securities) product for distribution in their country. This is essentially why Luxembourg now has the second largest fund industry in the world, after the United States. There are about five and a bit trillion dollars in assets under management based in Luxembourg, a country with a population of 600,000 people. By comparison, there are about $20 to $30 trillion in the States, a country with a population of about 300 million, so it punches way above its weight in terms of assets under management per capita.

That is part of the success of Luxembourg as a financial center and my experience of working around the world means I see the country as, firstly, a jurisdiction for well-managed, well-regulated and well-respected investment products initially in tradable securities, and then latterly, more in alternative investments. The second angle is actually as a hub of expertise, not just a jurisdiction; a place where people are working and where there is a consistent quality, particularly around risk and compliance.

A bit like in the Gulf, there are only a small number of Luxembourgers to support the funds industry. The local population is too small to service this, so they really need expatriates. So, as well as being a great place to set up a business and a great place to work, we in Luxembourg also need a great place to live, not just for the workers but for their families and friends. Giving the place that feeling of home has been a human challenge for the government here.


Vistra provides solutions for private equity, venture capital funds, and corporate clients, among others. Can you give us an overview of the various corporate and advisory services you provide and how you help clients navigate these challenges?

I would start by saying that we at Vistra have a belief that, as a services organization, it is the quality of your people that makes a difference. Furthermore, we take very seriously our responsibilities to the community and to the environment, as well as to our clients and our shareholders. Consequently, we have a business that has been tremendously successful. We have effectively defined our business around the client segments that we serve.

Hence, we have a private equity business, a real estate business, a corporate business, capital markets—which is effectively the administration of securitization vehicles—and, lastly, a private wealth sector. Depending on which clients’ segments people fall under, the services that we provide can vary considerably. Obviously for private equity and real estate clients, we are focused on helping them with their investments as well as helping them with the ways of working as we go into a modern age. These are alternative investments, so it is a ‘high-touch’ environment that is moving toward a ‘high-tech’ environment, where we provide fund administration but also administer the special purpose vehicles that they launch every time they make an investment. Therefore, that expertise of end-to-end service across the funds is a very important ingredient.

We also have a very important business on the corporate side. Vistra provides relocation services for companies that want to expand internationally. Obviously, in Luxembourg, because it is a small country, there is not so much of that outflow business. Instead, there is a lot of inflow business, with clients from other countries coming to set up in Luxembourg as it’s a European hub. Here at Vistra we are about building long lasting relationships with our clients, whether they are investors, corporates or high net worth individuals. What we find is that, particularly in Luxembourg, they really rely on us to take care of their commitments and their interests, allowing them to make decisions and expand their businesses with courage and expertise.

All together, we have about five thousand colleagues in 46 countries. We manage just over 200,000 client entities globally, and we have a fund administration of just shy of $400 billion, which is largely private equity, real estate, infrastructure and private debt. We have about 20 percent of the Fortune Global 500 and two-thirds of the leading private equity firms use us, including all of the top 10. As you can see, it is a really vibrant business.

We’ve been in Luxembourg, since 2007, so were well positioned prior to the big takeoff of alternative investment funds in Luxembourg, which took place in the 2013-2016 period after a directive that the EU launched called the Alternative Investment Managers Directive (AIFMD).

So, it is great fun being the country managing director here because all five of those segments are flourishing here; there is never a dull moment really as we help people translate from their own culture into the Luxembourg environment and back again. There are 42 different nationalities in our building here, so it is fantastically diverse as well.


According to one report, Vistra “has been actively hiring in recent years, taking its personnel numbers from 250 people in 2008 to 5,000 in just over a decade.” What specific factors have led to this expansion? What are your expectations for growth moving forward? You also recently completed the acquisition of business services provider, Newhaven. What does this acquisition mean for Vistra? In the future, do you expect to continue pursuing an M&A growth strategy or will you focus more on organic company growth?

What drove the business since 2016—which is when Barings Private Equity Asia, Vistra´s shareholder, acquired us—was initially an M&A-driven strategy. We saw a tremendous expansion both geographically as well as across the different services. The international expansion of services took a leap forward in 2018 when we acquired a company called Radius in the United States. We also merged Vistra with a company called Orangefield, on the funds administration side, around about the same period. So, for the first three years until around the middle of 2019, it was all about acquisitions. Since then, our strategic goal has been to establish a scalable platform. We will still make acquisitions like Newhaven, where there is a good opportunity to expand (in that case, the Australian facing side of the business). However, we really want to make sure that we have the optimal platform for growth going forward.

It is a bit like taking a deep breath: integrating those wonderful acquisitions that we have made so that there is an established, world-class platform onto which we can quite easily fit future acquisitions with common systems, processes, risk and compliance.

There is a tremendous amount of activity going on in our industry. Here in Luxembourg, the organic growth is really the story for us, particularly on the fund side where the business is growing at double-digit rates and we continue to gain market share. That has been the story for 2021, and I anticipate that will continue into 2022 and beyond. The other businesses are also doing well, but the fund administration area is really going gangbusters.


Brexit has caused somewhat of a headache for many financial service providers, ranging from tax consultants to corporate investors. What are the biggest regulatory shifts arising out of this new paradigm? What do you see as the primary challenges for private and institutional investors, both within and outside of the EU?

For the period between the British voting (albeit narrowly) to leave the EU and the actual Brexit, there was a lengthy period during which companies could prepare for Brexit. What it has created, though, is an interesting conundrum for people to try to resolve because businesses have regulatory considerations that make their activity more expensive. UK based firms—just as Swiss companies have found for many years—are in the heart of Europe, but not in the EU. Those challenges represented the first phase after Brexit.

We are now gradually seeing the second phase, which is really looking at what the opportunities are that have come from Brexit. For example, my UK colleagues would probably think that this is an opportunity to develop a UK alternative funds industry. Many of the largest private equity and real estate investors are based in London, so the talent is in London. However, they probably didn’t launch that much in the way of UK domiciled funds. They would have been using Channel Islands, Luxembourg or Ireland. Now they might give some serious thought as to whether a UK fund could be passported in other countries around the world.

If you have been following what the UK Government has been doing, they are looking at setting up London as an attractive fund center. Previously, it was where people worked, but the funds were domiciled in other countries, with the exception of the domestic market. That is going to be an interesting development. There are lots of other opportunities too, such as the trade agreements that have been struck between the UK, Japan and Australia. There are definitely opportunities for Vistra to help with those new trade nexuses that are emerging. There are some major opportunities for organizations if they are thoughtful about it, study that data, and try to anticipate the future for their client base.


Alternative funds in the country have grown steadily over the past 15 years, with investors seeking to diversify their portfolios, leading to a boost in demand for this asset class. Can you tell us how these alternative funds have grown over time? What asset classes do you believe holds the most promise for further growth in the future?

The drive towards alternative assets as investments has a few major causes. One is that interest rates have been low for a very long time, so the traditional money in the bank or bonds, for the average investor, is not particularly interesting.

Pensions are an obvious example. People are living longer, and they have higher living quality expectations. Therefore, there is a need to get higher rates of return. People moved initially towards equities for that. Equities have gradually slowed down in terms of their growth—plus the risk of equities has continued to have pretty much the same volatility—so there isn’t the risk-adjusted rate of return in equities that perhaps there was in the boom times of the 1980s and 1990s. Quite naturally, people just turned to other ways of making money. Real estate had always been a popular asset class. It had not necessarily been put into a fund structure. It was typically a very illiquid asset that maybe a pension fund would buy and then just sit on. Whereas now, there are massive real estate funds which provide diversification for the retail investor, the ultra-high net worth investors, or, indeed, for the institutional investors. That has really been where the driver came from, the diversification that was needed for a high rate of return.

What this creates is a need for service providers, like us, who are providing not the investment, but all of the administrative support around it. It has also become a really global business. We would have a UK fund manager, with a Luxembourg product investing all over Europe, and maybe into Asia as well. Special purpose vehicles are needed in each of those countries as they acquire property in each country. We can provide that service soup to nuts, because of our global presence and our local knowledge. As well as having global clients coming to us for their needs, we also can help them access those countries locally. That has been a tremendous source of growth for us, in private equity, real estate and infrastructure. Looking forward, I would say private debt will go the same way.

One of the things that is interesting for Luxembourg is, as we mentioned, that it is a small country, and, as important as attracting the clients, is attracting good quality talent to come here too. We really are actively broadcasting what a wonderful place Luxembourg is to live, particularly for people who want to raise a family. It is an incredibly safe country. It rates as the second safest country in the world if you look at the statistics. It also has superior education, infrastructure and housing, so it is a very attractive place for people to come and get a job.


Luxembourg is Europe’s largest fund jurisdiction, as well as the world’s second largest after the United States. What are the primary competitive advantages of investing in or setting up operations in Luxembourg as compared to other jurisdictions? Why should investors and institutions choose the Grand Duchy, and what do you believe makes Luxembourg a global leader in asset and fund administration?

To a certain extent, I am always jurisdiction neutral from Vistra’s point of view, because we operate in the other jurisdictions as well. However, as the Luxembourg country manager, I can point to its very stable economy. We do not really have dramatic political changes. At the moment, we have a coalition government between the Liberals, the Socialists and the Greens. It is not a risky place. We have a triple A rating. There are few countries now that can say that. Of course, you also have that EU passport ability by virtue of being right at the heart of the EU. You can drive from here to Frankfurt in two and a half hours, to Brussels in two hours, and on the train to Paris in two hours. It really is a very central destination for Western Europe in particular. The impressive thing is that this country does not sit back and act complacent about its position. After becoming an impressive funds center for traditional funds, we then parlayed that into being a massive center for alternatives.

The other area that people are learning more about is ESG. Fifty percent of the world’s green bonds are traded on the Luxembourg Stock Exchange. After COP26, this is going to be an increasingly important development.

The space industry is also significant. Luxembourg was the first country outside the United States to pass into law space exploration and space mining property rules. That means 120 space exploration companies are based in Luxembourg. Similarly, eight major Chinese banks have their European headquarters in Luxembourg. There is a lot of attraction here for people who want to do international business. It is a multilingual society, as well.


Do you have any final comments for the readers of Newsweek magazine?

I would just mention the impact of COVID-19, particularly on environment, social and governance, what they call the ESG criteria. Luxembourg is really at the forefront of the ESG agenda. It has always been strong on governance: there is a very high rate of risk and compliance activity here and a very strong anti-money laundering regulations. The social aspect is in the DNA of the country as well. It is an extremely fair and egalitarian society. We were the first country to have free public transportation across the country. We have very strong employment protection legislation, so you cannot hire and fire people at will like you can in other countries. As well, there is an incredibly socially responsible side. Then, regarding the environment, the government has plans to make it a driverless country. We are encouraging electric cars. A lot of the buildings are now equipped with electric power points, and the tram which is running through the city has also improved the public transportation links in a very ecologically sound way.

I see ESG as one of the growth areas for Luxembourg going forward, and that has, of course, been encouraged by the impact of COVID, because the pandemic has made the world’s population much more aware of challenges outside of one’s normal working environment.