By Hannes Glaus, Bratschi Wiederkehr & Buob – On 1 March 2013 the revision of the Swiss Collective Investment Schemes Act (“CISA”) as well as the amended Collective Investment Schemes Ordinance (“CISO”) came into effect. Two areas of the legislation are particularly noteworthy: the distribution of non-Swiss investment funds and the regulation of Swiss asset managers of (foreign) alternative investment funds.
The introduction of the licensing requirement was the main motive for the legislation in order to enable Swiss managers to act as delegated asset managers for EU alternative investment funds under article 20 of the EU Directive on Alternative Investment Fund Managers of 8 June 2011 (AIFMD).
Distribution to qualified investors: abolishment of the private placement regime
Prior to the revision only the “public offering” of non-Swiss investments funds was subject to regulation. The revised CISA abolishes the concept of public distribution and thereby also the private placement regime. Subject to a few noteworthy exceptions, any distribution, public or private, is now regulated.
The degree of regulation depends on whether the investment fund is marketed to qualified investors only or also to non-qualified investors, i.e. the public at large. Whereas marketing to the general public is subject to a rigid admission procedure with FINMA, marketing to qualified investors requires only the appointment of a (FINMA licensed) Swiss representative and a Swiss paying agent. This rule applies above all to distribution to pension funds and wealthy individuals.
If regulated, not just the placement but already the mere marketing of investment funds requires the prior appointment of a representative and a paying agent. Non-Swiss investment funds are broadly defined to comprise any collective investment scheme regardless of the actual legal form.
In conclusion, a Cayman hedge fund hosting a “private” presentation to a small circle of family offices in a prestigious Zurich hotel requires the prior appointment of a representative and paying agent.
Distribution to non-qualified investors
Distribution to non-qualified investors requires, in addition to the appointment of a representative and a paying agent, the approval of the investment fund and the fund documentation by FINMA.
Licensing requirements for asset mangers
In line with the AIFMD, the revised CISA provides that all asset managers of (Swiss and foreign) collective investment schemes above certain thresholds must obtain a license from FINMA. Managers of investment funds, whose investors are only “qualified investors”, are exempt from obtaining a license if one of the following conditions is fulfilled:
• The investment fund’s AuM, including the use of leverage, does not exceed CHF100 million; or
• The investment fund’s AuM is closed-ended (for at least 5 years), unleveraged, and does not exceed CHF500 million
The licensing criteria are largely the same as under the old law comprising the requirements for adequate organisation (functional separation of investment decision, execution and administration), independent risk and compliance function, predominately independent, non-operative board members, FINMA-approved auditors and adequate capitalisation.
It is important to note that FINMA is unlikely to tolerate the hitherto popular structure where the Swiss asset manager is officially only acting as an investment advisor to an offshore or other foreign asset manager with insufficient or no substance.