Switzerland, an attractive market for foreign funds

Switzerland is a politically stable and neutral country. Two-thirds of Swiss adults have assets above USD 100k. There are 594 thousand USD millionaires and an estimated 4000 ultra-high-net-worth individuals (over USD50m) as of the end of 2017.[1] Seed capital from insurances, banks and foundations is also present in sizeable amounts. The Swiss fund market is the fifth-largest in Europe, with assets totalling CHF1073bn in October 2017, up CHF155bn since the previous year.[2]

These facts make the Swiss market an attractive location for selling investment funds. When looking at the number of funds authorised for public distribution in Switzerland, foreign funds outnumber Swiss funds by almost five to one (7401 vs. 1551). Luxembourg and Ireland are the most represented domiciles for foreign funds, with over 6500 funds combined.[3]

The Swiss fund distribution regulatory framework

Switzerland is not part of the European Union and is not subject to the AIFMD rules. The distribution of foreign funds in Switzerland is regulated by a specific set of rules, where the function of the Swiss representative is central.

For the Swiss Financial Market Supervisory Authority (FINMA), any activity that promotes a fund is considered distribution, even a simple email or a phone call.

The current revision of the Collective Investment Schemes Act (CISA) came into full force on 1 March 2015. Among the key changes that were introduced, the Swiss investor base was segmented in three groups:

• Regulated qualified investors, i.e. banks, insurance companies and fund managers managing more than CHF100m in Switzerland
• Non-regulated qualified investors, e.g. pension funds, independent asset managers, HNWIs and family offices
• Non-qualified, or retail, investors

A foreign fund distributing or intending to distribute to retail or to non-regulated qualified investors in Switzerland is required to appoint a Swiss representative and a Swiss paying agent.

While this obligation is waived in the case of reverse solicitation, it is considerably difficult to make sure that a contact with an investor actually fulfils the very strict requirements for the definition of reverse solicitation, i.e. without any form of prior solicitation by the fund manager. For this reason, it is largely considered to be safer to appoint a representative and paying agent.

Once a foreign fund manager takes the decision to approach the Swiss market, the first step is generally to secure the services of a Swiss representative. The representative will initially discuss with the fund manager about the Swiss regulation in general and about the aspects which are specific to the type of the fund. A list of Swiss paying agents will also be provided for the client to choose from. Services and pricing models for Swiss representation can vary, although the general trend is that prices have been dropping since 2015.

After the initial contact, an onboarding process follows which typically takes a few weeks, during which the representative executes due diligence work on the fund, a representation contract is established, and the fund’s legal and marketing documents are amended for distribution in Switzerland.

Distribution to non-qualified investors (Retail distribution)

Distribution to retail investors is subject to a further authorisation by FINMA. Obtaining authorisation for retail distribution involves providing a set of required documents and translating legal material in a Swiss official language (German, French or Italian) if necessary. The representative leads the fund throughout this process to bring it to a good end.

FINMA has cooperation and information exchange agreements with the supervisory authorities in 17 countries.[4] Funds domiciled in these countries are eligible to apply for authorisation. Since December 2016, Hong Kong joined the list. It is worth noting that UCITS funds have a fast-track approval for retail distribution.

Funds authorised for retail distribution are allowed to market in the big Swiss distribution platforms, including the ones from well-established banks, thus accessing a broader scope of potential investors.

Choosing a Swiss representative

There are currently about 15 independent firms offering representation services for foreign funds in Switzerland. They fall into two groups:

• Firms that are licensed to represent funds distributed to qualified investors only;
• Firms that are licensed to represent funds distributed to all types of investors, including retail investors.

A fund wishing to be distributed in Switzerland should carefully consider which investor segments to address, and choose a Swiss representative with the appropriate licence.

Representatives that are licensed to represent funds for distribution to retail investors will have a deep knowledge and experience about how to proceed in the best possible way, including providing resources such as professional translation services and direct communication channels with FINMA and with the big distribution platforms.

The Swiss representative, a long-term partner for foreign funds

The role of the Swiss representative, as established in the CISA, is to ensure that the funds’ distribution activities comply with the Swiss law.

While it is a legal obligation to appoint a Swiss representative for distribution in Switzerland, some representatives evolved their services very quickly beyond those of a simple legal representative. In addition to the legal and procedural expertise, a Swiss representative can provide guidance and help with the fund’s distribution in Switzerland.

Today, Swiss representatives can:

• Help building relations between their client funds and Swiss-based distributors and investors;
• Organise cap intro events and conferences to help funds meet investors;
• Act as a global distributor to organise retrocessions for placement agents in Switzerland;
• Assist the fund with cross-border registration in multiple countries within and beyond Europe;
• Publish fund information and documents on electronic platforms dedicated to Swiss investors;
• In some cases, act as a point of contact between potential investors and the fund.

This makes the Swiss representative an ongoing point of reference, source of business, and long-term partner for a fund’s distribution activity in Switzerland.

In summary

Switzerland is a large and attractive market for foreign investment funds with very specific, yet easy to fulfil, requirements for distribution. The main points to retain are:

• Addressing a Swiss investor in any way (except for regulated qualified investors) is distribution, and requires appointing a Swiss representative and a Swiss paying agent;
• There is a large market for retail distribution;
• Ucits funds as well as funds from agreed countries can apply for retail distribution authorisation;
• The Swiss representative is the main hub through which a fund can fulfil its regulatory obligations in Switzerland;
• The relation between the fund and the Swiss representative is an active one, with an ongoing exchange of useful contacts and information.

For any question concerning funds representation and distribution in Switzerland, please feel free to contact Oligo Swiss Fund Services (a regulated Swiss representative for funds addressed to both qualified and retail Swiss investors) at [email protected].

To contact the authors: 

Matteo Risoldi, Chief Operations Officer at Oligo Swiss Fund Services: [email protected]

Joana de Burgo, Compliance Officer at Oligo Swiss Fund Services:  [email protected]

Footnotes:

[1] Credit Suisse Research Institute, Global Wealth Report 2016

[2] Swiss Fund Data – Swiss Fund Market Statistics, 31 October 2017

[3] SFAMA, annual report 2016

[4] FINMA agreements in accordance with Art. 120 para. 2 let. e CISA, December 2nd 2016