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Assessing the evolution of the Swiss funds industry

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Interview from Lugano, Switzerland’s third financial centre, with Gian Luigi Trucco, Swiss Association of Asset Managers…

With revised CISA in place and the introduction of the Swiss legal representative, how do you assess the current climate in the Swiss funds industry?

For the different actors, including the smaller ones, the implementation of the new rules and the establishment of a Swiss legal representative, in case of distribution, has turned out to be a relatively easy and fairly tolerable cost. Particularly if compared to heavier burdens and expenses that other rules and accomplishments, both domestic and international, imply for them, at a time of decreasing operational margins. 

How is the Swiss funds industry likely to evolve under CISA (Collective Investment Scheme Act)?

Switzerland is already one of the most liberal and transparent fund markets in Europe. With the implementation of CISA – evolving the concept of ‘qualified investor’, simplified prospectus regimes, approval processes and time-to-market rules – this position is further reinforced. It will open new operational opportunities for different actors, including independent asset managers who combine private wealth management with fund management and advisory. 

The introduction of limited liability partnership structures and SICAVs in Switzerland, too, is relevant for both traditional and alternative collective investment vehicles. The fund and institutional asset management industries are well integrated in a wealth management sector in which Switzerland still ranks first worldwide with a share of about 28 per cent, followed by the Caribbean and Luxembourg, each with about 15 per cent. This is despite the growing competition of centres such as Panama, Dubai, Hong Kong and Singapore. However, a number of questions of detail remain to be resolved about CISA, as with respect to the detailed documentation which has to be submitted to the supervision authority for its approval procedure.

How important is it that Switzerland is viewed as a level playing field to that of the EU under AIFMD?

It is very important that the European Union recognises the Swiss industry not just in general legal terms but also in providing cross-border access via the expected “European passport” for our products and marketing activities. 

Switzerland is home to some 4,998 UHNW individuals according to the latest Research and Markets report. This number is forecast to rise by 24 per cent to 6,847 in 2018. Do managers need to accept the regulatory changes and look at the bigger picture?

We fully accept the new regulations. The UHNW segment is important for both the wealth management and the fund industries and is also a stimulus for the creation of more innovative and custom-tailored vehicles for such demanding clients. In Ticino, we are looking to the new trend of HNW individuals who delocalise from Italy and other countries for different reasons, beyond merely tax considerations. 

Will a stronger Swiss franc help or hinder its hedge funds industry?

The impact of the franc’s rate of exchange may not be excessive. It should not act as a deterrent to doing business in and from Switzerland. Obviously local operators get most of their income in euros, much less in USD, and the prominent share of their costs, as well as their consolidated accounts, are in Swiss Francs, thus making the operator’s returns lower. Nevertheless, in Lugano its proximity to the Italian border and big centres such as Milan makes hiring EU skilled nationals easier, thus mitigating the high labour costs to some extent.

What would you categorise as the most attractive features of the Swiss funds market?

There are many attractive features in Switzerland. These include: the presence of potential seed capital from private banks, foundations, insurance companies and other financial entities, not to mention the tradition of private banking, trade finance and commodity trading. The funds industry is characterised by multiculturalism, fluency in foreign languages, providing fertile ground for investment professionals. The quality of life is good, as well as the level of public and private services. Also a favourable tax environment helps, despite the gaps between the Cantons and the property tax in place in Switzerland. 

Where does Switzerland need to strengthen to continue attracting global alternative managers?

Possible solutions could come from reforming the wealth tax when applied to companies with uncertain and highly variable values, mostly linked to persons, such as hedge funds and their managers. Also the creation of new ways for local managers to access seeding from local pots of money, such as foundations and so on, could help. Particularly for Lugano, it would be great to improve air connections with major centres, especially London.

How do you foresee regulatory changes impacting the three main financial cities of Switzerland – Zurich, Geneva and Lugano?

The most important upcoming regulations are the Italian “voluntary disclosure” for assets held in Switzerland and not fiscally disclosed, and the automatic exchange of information to be implemented by Switzerland in 2018. We think most disclosed funds will stay in Switzerland due to better investment opportunities and growing country risks around Europe. 

The three major financial centres, Lugano, Geneva and Zurich, have different features. Lugano is traditionally more devoted to the Italian clientele, whilst the other two have more international financial targets. However, the new rules are going to change the environment dramatically, as the focus shifts from secrecy to the quality of advice, cost-performance ratios and level of services; as well as the creation of new appealing and rewarding vehicles, for both the promotor and the investor. A favourable trend could also be the integration of advice and management for personal and corporate assets.

What are the tax considerations for managers when choosing between these different locations?

There are many factors which may be evaluated in selecting a location, such as environmental, cultural and infrastructure features. A major subject is taxation, but higher taxations in some cities or Cantons are usually balanced by lower operational costs and housing rents. Such is the case for Lugano in relation to Zug and other areas. 

How is Ticino for Finance able to help managers that decide upon Lugano as a place to do business? 

Ticino for Finance helps in many ways. It lobbies at both the domestic and international level with targeted communication programs and selected events, in order to inform and attract perspective new operators aiming to relocate to Switzerland. Moreover, it fosters contact with public and private institutions in order to facilitate such decisions, via a network of expert professionals. Ticino for Finance takes advantage from the mix of its promoters, namely the Canton, the Municipalities, together with associations and highly representative financial entities.

Finally, what are your expectations for Switzerland’s funds industry over the next two years? 

Expectations are positive. Much will depend on the attitude of the European Union and how the negotiations play out, particularly in terms of opening the European markets to Swiss managers and granting the “European passport” to our products. Otherwise, it would be necessary to change our business models and look beyond European borders. 

Under the most attractive scenario, the industry may enter a new phase of growth, taking advantage of the huge assets that are deposited here. We will then be able to manage those ourselves directly instead of having them managed externally.

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