SWITZERLAND: An Introduction to Investment Funds

Introduction 

With more than CHF3.3 trillion total AuM managed by asset managers in Switzerland by the end of 2021 – besides the traditional banking and insurance business – Switzerland is one of the largest asset management centres both in Europe and worldwide.

Switzerland is therefore not only one of the biggest hubs for distribution of foreign funds but also has a very large domestic market for Swiss funds. Currently, more than 1,900 Swiss funds are authorised by the Swiss Financial Market Supervisory Authority FINMA and more than 8,500 foreign funds are approved by FINMA for offering in Switzerland to retail investors. Key contributors to the Swiss fund market are banks, fund management companies, managers of collective assets and distributors. Currently, over 50 fund management companies and over 200 managers of collective assets are authorised by FINMA. Swiss funds and the offering of foreign funds in Switzerland are primarily governed by the Swiss Collective Investment Schemes Act (CISA), the Swiss Collective Investment Schemes Ordinance (CISO), and the Swiss Collective Investment Schemes Ordinance of the FINMA (CISO-FINMA). Swiss fund management companies and managers of collective assets are governed by the Swiss Financial Institutions Act (FinIA), the Swiss Financial Institutions ordinance (FinIO), and the Swiss Financial Institutions Ordinance of the FINMA (FinIO-FINMA). The provision of financial services by financial services providers, including the distribution of Swiss or foreign investment funds, is further governed by the Swiss Financial Services Act (FinSA) and the Swiss Financial Services Ordinance (FinSO).

Please note that this overview does not cover Swiss investment structures not subject to the CISA which therefore do not require any authorisation from FINMA, such as investment clubs or investment companies.

Products  

Swiss funds 

For the time being, all Swiss funds are subject to the approval and supervision of FINMA. They can be set up as open-ended schemes or closed-ended schemes. Open-ended schemes are typically going to be contractual funds or SICAVs, whereas closed-ended schemes take the form of an LLP or SICAF. Regulated open-ended funds are categorised in four categories:

• securities funds, which are equivalent to UCITS funds as to the investment policy, investments techniques and restrictions;

• real estate funds, for which the investment policy is predefined and exhaustive in the law, and that allow a primary market and a secondary market for questions of liquidity;

• other funds for traditional investments; and

• other funds for alternative investments, ie, funds which are neither securities funds nor real estate funds and have specificities which deviate from a securities funds. Normally, with more than 30% of the assets being categorised as alternative, the fund is considered as a fund for alternative investments and no longer a fund for traditional investments.

Regulated closed-ended funds take the form of LLPs for private markets or real estate projects. Regulated products in the form of SICAFs are rather uncommon in Switzerland as they are not transparent from a tax perspective.

Open-ended schemes need an authorised fund management company, a custodian bank and must be managed by a regulated manager of collective assets if the funds are for retail investors. Specificities for approved funds can be embedded if only qualified investors according to the CISA are admitted as investors.

Foreign funds  

Foreign collective investment schemes must be approved by FINMA before they can be offered in Switzerland to non-qualified investors. The approval will be granted by FINMA subject to, inter alia, the appointment of a representative and a paying agent in Switzerland. To note that as a matter of principle, only UCITS are eligible for approval. Foreign collective investment schemes offered exclusively to qualified investors do not require any approval by FINMA, but must designate a representative and a paying agent if they are offered to high-net-worth retail clients or their private investment structures which have opted-out to qualify as professional clients.

While the distribution of funds in Switzerland or to Swiss clients does not require any FINMA licence, it generally constitutes a financial service as defined by the FinSA and the FinSA requirements (such as client classification, conduct rules and registration with a client adviser register) must be complied with.

Institutions  

Swiss companies which want to manage a Swiss fund or a foreign fund must be authorised by FINMA as managers of collective assets or, if the AuM do not exceed a certain threshold and the fund is limited to qualified investors, as portfolio manager. Swiss companies which want to manage funds independently in their own name and for the account of the investors, and in this context set up and administer Swiss funds, require a licence as fund management company. This licence also allows to manage the assets of the funds. Alternatively, a third-party manager having the appropriate licence in Switzerland or abroad may be appointed.

The authorisation requirements applicable to fund management companies, managers of collective assets and portfolio managers (Fund Entities) are defined in the FinIA and detailed in the ordinances. They encompass various requirements notably in terms of organisation, internal documentation, capital requirements, governance and staff. The authorisation procedure with FINMA generally takes between three to six months depending on the concrete circumstances.

Once authorised, fund entities are prudentially supervised and must inform FINMA of any change in circumstances underlying the authorisation. In case of significant changes, the prior authorisation of FINMA is required for the continuation of the activities.

Outlook: L-QIF 

The Swiss Parliament recently passed an amendment to the CISA to introduce the Limited Qualified Investor Fund (L-QIF), a new type of investment fund which will not require the approval or supervision of FINMA. The consultation on the amendment of the CISO defining the implementation provisions for the L-QIF run by the Federal Department of Finance ended in December 2022. The revised CISA and its implementing provisions are expected to enter into force on 1 January 2024 at the earliest. L-QIFs may be set up as either contractual funds, SICAVs or LLPs under the CISA. L-QIFs are reserved to qualified investors and allow for more flexibility than the other types of Swiss funds. They do not require approval by FINMA and are not subject to direct prudential supervision by FINMA. Consequently, L-QIFs can be launched much more quickly and cost-effectively. L-QIFs must be managed by FINMA-supervised managers of collective assets or Swiss fund management companies, meaning that L-QIFs are indirectly supervised by FINMA. Further, L-QIFs are subject to specific investment rules, which are couched in very broad terms considering the goal of promoting innovation and the limited investor group.

The L-QIF will allow the Swiss fund and asset management industry to exploit its existing potential even better and enhance Switzerland's competitiveness and strengthen its position as a fund domicile.