By Simon Gray – Switzerland’s southernmost canton of Ticino has been a centre for international financial services for nearly two centuries, since the establishment of Lugano’s first bank in 1833. Closer to Milan than to Zurich, the Italian-speaking region is ideally placed geographically and culturally as a gateway to business from southern Europe.
Today Ticino and in particular Lugano is becoming a major centre for hedge fund managers drawn not just by the physical beauty of the region’s mountains and lakes and its impressive quality of life but key business advantages: a first-rate communications infrastructure, a flexible but solid and legal regulatory framework, a comprehensive array of skilled and experienced service providers, and a favourable tax regime.
Over the past decade and a half, a number of leading hedge fund managers have moved all or part of their operations to Ticino, including most recently Abraxas Capital Advisers, Insch Capital Management and Cramer Asset Management. The region currently boasts up to 40 hedge fund firms with more than CHF10bn in assets under management, around half in single-manager funds, and combined annual turnover exceeding CHF200m.
“Ticino’s economic development philosophy is based on creating the conditions for businesses and their owners to thrive,” says Franco Citterio, director of the Ticino Banking Association and president of Ticino For Finance. “A cornerstone is a well-calibrated taxation system designed to promote, encourage and support hedge fund firms and managers and other financial services providers, and which compares favourably with other leading financial centres in Switzerland and beyond.”
Competitive tax regime
According to a survey by research and consultancy firm BAK Basel Economics comparing the burden of tax on profitable investment projects across financial centres worldwide, the effective average tax rate in Ticino was 18.2% in 2011, compared with 21.4% in Geneva and 26.3% in London. In addition, business owners can open a dialogue with the canton's tax authorities and reach individual agreements on deductions and other aspects of the system, ensuring highly competitive tax treatment.
Ticino is also geared up to provide speedy and efficient legal, regulatory and administrative processes, Citterio says, responding promptly to businesses’ queries and requests and simplifying otherwise complex procedures – an important factor in attracting to the region hedge fund management firms whose business is often extremely time-sensitive.
He notes that it’s easy and convenient to establish a new company in Ticino; the Trade Registry can ensure a legal entity is up and running within a week. “Business owners can negotiate directly with the local authorities, and the cantonal government is ready to devise ad hoc solutions to resolve any critical issues or obstacles,” Citterio says. “Finding a suitable location is extremely straightforward, and there are no administrative restrictions on hedge funds’ access to the financial marketplace.”
Most hedge fund managers setting up a firm in Switzerland establish a joint stock corporation requiring a minimum share capital of CHF100,000, rising to a fully paid in CHF200,000 for firms subject to authorisation from the industry regulator, the Financial Market Supervisory Authority (FINMA).
Firms located in Ticino benefit from Switzerland’s measured approach to alternative investment manager regulation, overseen by FINMA, which supervises financial markets, maintains relationships with foreign regulators and oversees international aspects of the Swiss regulatory framework. Its administrative procedures are designed to be simple, flexible and rapid.
Access to Europe’s single market
The dust is now settling on amendments to Switzerland’s Collective Investment Schemes Act, which has brought the country’s legislation governing alternative investment firms, other asset managers and funds into line with the latest international standards, as well as ensuring that Swiss can meet the rules governing access to the European Union’s single market for alternative funds after 2015.
While at one point the Swiss fund industry feared that the proposed CISA changes might make its products and services less competitive, the authorities have listened to feedback from the sector in finalising the legislation. There is now broad understanding that in a global environment demanding tighter regulation and increased transparency, bringing Swiss regulation into line with the rest of Europe will make the country’s hedge fund firms and their funds more attractive to investors.
The relocation of Insch Capital from Zug to Lugano in June 2012, enabling the firm to bring its business together in a single location, is an indication that the new rules hold no fear for hedge fund managers that see the changes as an opportunity to develop and expand their business.
Insch’s Christopher Cruden argues that bringing hedge fund managers under the supervision of FINMA and the associated legal changes represent a positive development for the industry, They will allow it, he says, to benefit from well-documented and respected standards and requirements that will help to build investor trust, not to mention the strong reputation for effectiveness and understanding of the industry enjoyed by the regulator.
Another recent newcomer is Abraxas, which was first established in London in 2002 and six years later created a Ticino-based subsidiary that advises the parent company. According to directors Fabio Frontini and Stefano Ruggiero, the key attractions included competitive taxation and the ability to set up the business in less than two months. Cost savings in areas such as property rental are also an advantage, they say, while streamlined administrative procedures leave the firm’s principals free to concentrate on their core asset management business.
The physical and communications infrastructure and service resources offered by Ticino are also an important draw to hedge fund managers considering relocation. The state-of-the-art technical facilities in Lugano and Ticino as a whole includes a growing network of fibre optic cable, and other projects are underway to meet the industry’s evolving IT needs.
The availability of skilled service providers is also crucial to the development of the hedge fund management industry. The region, which is home to a broadly-based corporate sector including insurance companies and subsidiaries of multinationals, enjoys access to specialised firms, both local and global, including business lawyers, fiduciary firms and accounting and audit practices.
Work is constantly in progress to improve and extend Ticino’s travel and communications resources, especially its critical links to northern Switzerland. For example, a lengthening of the Lugano-Agno airport runway will make it possible to expand services to London and other world financial capitals; a new railway link opening in 2013 between Lugano and Malpensa will make it possible to reach Milan’s airport in less than an hour; and from 2017 Alptransit, the world’s longest tunnel, will cut the journey from downtown Lugano to Zurich to an hour and a half.
Human resources are a key factor in Lugano’s growth as a financial centre, and the region, which draws on a pool of nearly two million people, has proved a magnet for ambitious young people from other parts of Switzerland as well as abroad. The three major sectors of the economy currently employ 180,000 people; 30 per cent of Ticino's workforce has a university degree and 60 per cent have completed post-secondary education.
Other, less tangible factors also play a role in attracting hedge fund managers and their firms to Ticino. The canton exemplifies the high standard of living and quality of life for which Switzerland is renowned worldwide, and its geographical location brings a distinctive touch of Italy flair and style to its cultural life. Says Citterio: “More than just a business location, it is an environment well suited to those who enjoy socialising and building personal relationships outside working hours.”
Today, he says, there’s no question that Ticino offers an attractive environment for hedge fund managers looking to launch a new business or relocate an existing one. “Our favourable tax system, business-friendly administration and well-designed legal framework, as well as start-of-the-art infrastructure and broad talent pool, have all helped make Lugano the country’s third largest financial centre,” Citterio argues. And its growth, in the hedge fund sector and beyond, continues apace.