SPECIAL REPORT SWITZERLAND 2015 - HFM Global€¦ · 2015 HFMWEEK SPECIAL REPORT. SWITZERLAND 2015...

FEATURING Argentière Capital // Bastions Partners Office SA // Etops AG //Hugo Fund Services // Krom River Trading // Oligo Swiss Fund Services SA // PricewaterhouseCoopers AG // SEQUOIA Asset Management S.A. // SFAMA // Ticino for Finance // Tolomeo Capital // UBS Fund Services

REGULATION OVERHAULDeadline of 1 March looms to gain a FINMA licence

EU BUSINESSRegulatory changes expected to entice European investors

NEW OBLIGATIONS FOR FOREIGN FUNDSRequirement for a Swiss representative and paying agent

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WEEKHFMS P E C I A L R E P O R T

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ajor changes are in store for the regulation of both the fund business and the Swiss financial market as a whole. In December 2013,

the Federal Council launched consultations on the Financial Market Infrastructure Act (FMIA), designed to enhance the stability and competitiveness of Switzerland’s financial industry in the long term by bringing the regulation of financial market infrastructures and derivatives trading into line with market developments and international requirements.

Consultations for the Federal Financial Services Act (FFSA) and the Financial Institutions Act (FinIA) ended on 17 October 2014. These are aimed at strengthening client protection in the financial sector, and reducing market distortions by ensuring a level playing field for providers of different financial services and products. The new regulations also seek to improve the competitiveness of Switzerland’s financial sector internationally.

In its position paper the Swiss Funds & Asset Management Association (SFAMA) welcomed the draft legislation from the perspective of Swiss asset management, while highlighting the clear need for amendments, specifically regarding legal enforcement. Given that a large portion of Swiss financial services and products are exported to the EU, orientation toward EU regulations is a necessity. However, care must be taken to ensure this is only applied to the extent necessary to safeguard such export opportunities going forward. The draft legislation overshoots the mark in various respects, and must be amended accordingly.

Why are the FFSA and FinIA important for Swiss asset management, and ultimately for Switzerland’s financial centre and economy? Asset management is a mainstay of the Swiss financial industry, and various studies show its significance is set to increase further. Switzerland boasts extensive expertise, ranking among the leading locations for

wealth management and insurance worldwide. In addition to numerous traditional Swiss businesses, asset management has attracted a whole host of experts and global managers to Switzerland in recent years. Bolstering asset management could create jobs in the financial sector in Switzerland, and enhance value creation. This could make up for part of the downturn in the traditional banking business.

The Swiss institutional asset management business is set to post only modest growth of just under 2% per anum (p.a.) through to 2020, compared with the attractive 6% p.a. forecast for the global market. Growth will come primarily in the pension segment, with pension funds, insurers and sovereign wealth funds the main investors. Securing the corresponding financing is likely to be one of the biggest political challenges worldwide in the coming years. Successful asset management could do a lot in terms of finding a solution, and is not simply another financial industry 'problem'. We can therefore assume that an even greater proportion of our clients will come from outside Switzerland in future.

If Swiss asset management is to be strengthened over the long term, and its competitiveness maintained, Swiss providers must be able to participate in the growth in institutional assets forecast internationally. This depends on their being able to export their products and services to other countries, which in turn hinges on aligning Swiss financial market legislation with international regulatory standards. The FMIA, FFSA and FinIA will play a part in safeguarding the exportability of Swiss financial products and services. The proposed restructuring of the financial market legislative regime and the draft laws represent an investment in Switzerland as a financial centre, and will pay off over the medium to longer term for the Swiss asset management industry, the financial sector as a whole, and the broader economy.

Markus FuchsManaging director of the Swiss Funds & Asset Management Association (SFAMA)

MMarkus Fuchs is the managing director of the Swiss Funds & Asset Management Association (SFAMA).

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S W I T Z E R L A N D 2 0 1 5 C O N T E N T S

ROUNDTABLE

A REGULATORY REVOLUTIONDr Guenther Dobrauz-Saldapenna of PwC hosts the HFMWeek Switzerland roundtable with Ivan Popovic of Tolomeo Capital, Michael Quinlivan of Argentiere Capital, Mike Cartier of Krom River Trading and Colin Vidal of Hugo Fund Services

FINANCIAL SERVICES

KEY DEVELOPMENTS IN THE SWISS FUND MANAGEMENT INDUSTRYAndre Valente, head of fund services, UBS Fund Services, discusses this year’s hot topics for the Swiss fund management industry

REPRESENTATION SERVICES

DOES MY FUND NEED TO MEET THE 1 MARCH DEADLINE FOR A REPRESENTATION SERVICE?Luis Pedro and Rodolphe Chatagny of Oligo Swiss Fund Services talk about the upcoming deadline to appoint a Swiss regulated representative

TICINO FINANCIAL CENTRE

SWITZERLAND AND THE FINANCIAL CENTRE OF TOMORROWFranco Citterio, director of the Ticino Banking Association and chairman of Ticino for Finance, discusses the past, present and future of the Swiss fi nancial centre and asset management sector

FUND SERVICES

NEW SWISS RULES FOR FUND DISTRIBUTION AND MANAGERSPwC’s Dr Guenther Dobrauz-Saldapenna and Dieter Wirth discuss Switzerland’s regulatory changes and the upcoming implementation of further rule changes

WEALTH MANAGEMENT

REPRESENTATION AND DISTRIBUTION OF FOREIGN FUNDS IN SWITZERLANDHFMWeek speaks with Louis-Frédéric de Pfyffer of Bastions Partners who suggests hedge fund managers’ expectations from their Swiss representatives are more than plain compliance and administrative services

ASSET MANAGEMENT

SWISS FUNDS MUST CHANGE TO SURVIVECyrus Fazel and Henri Corboz of SEQUOIA Asset Management talk to HFMWeek about the current regulatory framework in Switzerland

INNOVATION

A DOUBLE-EDGED REGULATORY SWORDMichael Appenzeller, the co-founder of Etops and Fundbase.com, explains the impending Swiss regulatory changes and how his offerings can ease the transition

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Secure compliant access to Switzerland and the world’s leading alternative investors ... through the world’s first regulated hedge fund platform for qualified investors.

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Guenther Dobrauz (GD): Switzerland is one of the most important placement markets for hedge funds in the world. How has that developed in the past year?

Ivan Popovic (IP): Traditionally speaking, the Swiss hedge fund market has been more of a fund of funds market, but this model has been under increas-ing pressure over the last cou-ple of years. As a result of global scepticism towards hedge funds, the market seems to be suff er-ing. Switzerland has always been more a place for asset allocators than for true investment fi rms or managers. Having said that, as a systematic asset manager Tolo-meo Capital is clearly diff erent from the traditional hedge fund off erings in Switzerland.

Michael Quinlivan (MQ): Ex-isting private placement regimes throughout Europe have been turned on their heads in the last year, and Switzerland is no exception. However, Swit-zerland, unlike the AIFMD-regulated countries, has intel-ligently preserved certain marketing exception carve-outs

with regards to institutional asset managers, insurance companies and banks. Asset management is a very impor-tant part of the Swiss economy, and they were wise not to create too much disruption.

Mike Cartier (MC): Krom River is a commodity focused manager and the entire commodity asset class remains unloved and un-wanted within the growing range of alternative investment products for investors within Switzerland. However, in spite of this frigid at-mosphere, certain investor types are returning to the commodity asset class. In general terms, we see continued capital fl ows into Switzerland, with a much more sophisticated approach to alterna-tive investments.

Colin Vidal (CV): With the introduction of the AIFMD in

the European Union, funds have had to navigate a com-plex and at times hostile regulatory environment. It was therefore not surprising to feel a certain angst by managers when the Swiss revised the Collective Investment Scheme

EXISTING PRIVATE PLACEMENT REGIMES THROUGHOUT

EUROPE HAVE BEEN TURNED ON THEIR HEADS IN THE LAST YEAR, AND SWITZERLAND IS

NO EXCEPTION

”

Dr Guenther Dobrauz-Saldapenna is the leader of PwC Zurich’s Legal Regulatory Services practice. Previously, he practised with Deloitte and as an attorney. For a number of years he also served as legal counsel to a VC/PE firm and an international hedge fund.

DR GUENTHER DOBRAUZ-SALDAPENNA OF PWC HOSTS THE HFMWEEK SWITZERLAND ROUNDTABLE WITH IVAN POPOVIC OF TOLOMEO CAPITAL, MICHAEL QUINLIVAN OF ARGENTIERE CAPITAL, MIKE CARTIER OF KROM RIVER TRADING AND COLIN VIDAL OF HUGO FUND SERVICES

A REGULATORY REVOLUTION

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THE REVISION HAS CREATED A LEGAL FRAMEWORK FOR FUNDS

TO OPERATE IN AND REMOVED THE OVERALL REGULATORY UNCERTAINTY THAT PREVIOUSLY EXISTED – IT IS NOW OUR DUTY TO APPLY THESE

NEW REGULATIONS

”

Act (CISA) in March 2013. Yet these initial concerns were assuaged as it became very clear that Switzerland took a much more pragmatic and less burdensome approach to the regulation of distribution.

As a FINMA-authorised representative for funds dis-tributing to qualifi ed investors, Hugo Fund Services has a privileged vantage point from which to observe the overall investment landscape. Today, we get a sense that the ease of authorisation has made Switzerland an even more at-tractive placement market. In discussions with our fund clients, the conclusion seems universal that the two stand-out countries open to hedge funds and off shore structures in Europe are the UK and Switzerland.

GD: Th e transitional period for the partially revised CISA is over in February. How are you responding to the changes it brought?

IP: Last year we initiated the process to hand in our FIN-MA application fi le, which we plan to do by the end of the fi rst quarter. Gett ing closer to the hurdle in terms of assets under management would force us to be regulated anyway, but we certainly wanted to prepare ourselves for the next step in the growth of Tolomeo Capital. We must make sure that we create all the necessary structures and processes to comply with the new law, as well as meeting the increasingly demanding expectations from investors.

MQ: Obtaining the initial FINMA licence was the heavy lift ing part. Going forward, however, there are defi nitely a few Swiss nuances that managers (both inside and out-side of Switzerland) need to be aware of. In particular, you need to appoint a Swiss representative and a paying agent. Additionally, marketers in Switzerland will need to become far more diligent in their record keeping when it comes to approaching investors or documenting reverse solicitation situations.

MC: Th e Krom River directors made the decision in 2012 to fi le a FINMA application. Th is was not possible for an alternative investment manager like Krom River prior to the revised CISA. During 2013 we reviewed the application process, chose the service providers to sup-port our application process and fi led our application in December 2013.

CV: Hugo Fund Services became FINMA-authorised in response to the revision of CISA. One may argue that this was the most extreme of responses. More seriously, any new legislation is fraught with grey areas and open to diverg-ing opinions and personal interpretation. We do not want the funds we work with or ourselves to be caught skinny-dipping when the proverbial tide goes out. We need to be the ones asking the right questions in order to shed light on these opaque areas and other regulatory conundrums.

Nonetheless, the revision has created a legal framework for funds to operate in and removed the overall regulatory uncertainty that previously existed – it is now our duty to apply these new regulations. With the upcoming end of the transitional period, it seems many funds have under-stood the opportunity and we are inundated with requests regarding representation.

GD: If you became authorised by FINMA – what is your view on it? Has the process been more burden-some, time consuming or costly than elsewhere?

IP: Th ere was no rush for us to get the authorisation: we have been out of scope due to the de minimis rule and the fact that we have not been active in the market to raise as-sets. Now we can benefi t from the collective experience that our peers and their advisers have been making. As we are currently in the midst of the authorisation process, it is probably too early to say anything about the costs. Nev-ertheless, it is true that the whole process requires a lot of time and eff ort, which can pose a signifi cant challenge, particularly for smaller fi rms.

MQ: Everything in Switzerland tends to be more expen-sive and that certainly extends to the FINMA application process. Th e process itself is on par with the UK’s FSA; however, the timing tends to be longer. Depending on the complexity of your business, the process from start to fi nish can be anywhere from six months to one year. One unique aspect is that FINMA requires that you have a cer-tifi ed auditor thoroughly review your application before it can even be submitt ed. Th is adds considerably to both the cost and the time it takes.

MC: Where should I start? Well, the Swiss model of in-direct regulatory supervision is diff erent from many of the other regulatory models on the planet today. Initially we were cautious about the entire process. We worked through the FINMA M1 application template and real-ised the degree of documentation support would be much greater than even the deepest investor due diligence ex-ercise – and realised that, of course, it should be deeper.

Despite the signifi cant amount of work, we had very good support from our application adviser. Th e involve-ment of the application auditor we initially perceived as busy rework. At Krom River we run the business on our own operating platform, HTV2, and the auditor review of our HTV2 operating system proved to be one of the more encouraging elements of the application process.

Th e cost of the FINMA licence application process is more expensive than other jurisdictions. Additionally, we

Ivan Popovic is a founder and the managing partner of Tolomeo Capital.Holding an MA in Mathematics from the ETH (Zurich) and an MBA from IESE (Barcelona), he has over 15 years of experience in the alternative asset management industry.

Michael Quinlivan serves as the chief operating officer and is a founding partner of Argentière Capital. Prior to joining Argentière, he served as head of business development for the Equities Proprietary Trading Group at JP Morgan. Quinlivan’s career originally started in investment banking with Merrill Lynch & Co as part of its Mergers & Acquisitions Group.


S W I T Z E R L A N D 2 0 1 5

now have a compliance and regulatory adviser, Mercury AG. Th is is a specifi c FINMA requirement for Krom River and is an example of outsourcing support for a mission-critical function. As pertains the FINMA mandated regu-latory audit, this will be done by PWC Zurich, which has been our fi nancial auditor since 2008.

CV: Again, here we answer from the vantage point of our clients; the off shore funds. From our discussions there seems to be no question that complying with CISA has been a much more straightforward and less onerous pro-cess than the neighbouring AIFMD regulation.

From the perspective of a fund, there are no require-ments such as special regulatory reporting, the appoint-ment of local directors, or fi ling directly with the regulator; many of which exist within other jurisdictions. In its most basic form, compliance requires three agreements: a rep-resentation, a distribution and a paying agency agreement.

GD: Are you seeing benefi ts of being authorised?

IP: It facilitates access to EU countries and conversations with investors. Many investors nowadays put a lot of em-phasis on regulations. Th erefore, being regulated is a con-dition for the further growth of the business.

MQ: Switzerland used to be viewed as an unregulated ‘wild west’ for the hedge fund indus-try. Th e new CISA and requisite licensing changes these percep-tions, especially, it would seem, for US investors. In the long term, there is the hope that an agree-ment will be reached between Switzerland and the rest of the EU to recognise each other’s regulato-ry regimes. Th is would make mar-keting and distribution through-out the EU substantially easier.

MC: One of our core strengths has always been the busi-ness and operational stability. FINMA registration was essential for us to maintain this and ensure the business was positioned to continue operating in Switzerland. Nav-igating the rigorous application process and receiving the FINMA licence displays both our competency and signals to investors our professionalism and commitment to the business. We anticipate growth opportunities with our FINMA registration both through growing assets in our fl agship product and through the addition of new prod-ucts. Potential investors who approached us in the past oft en had investment manager’s home country regulator authorisation as a mandatory requirement for their invest-ment due diligence process. Th is was an obstacle which is now removed.

CV: From a fund perspective, yes. We are seeing that many investors are already asking funds to have a Swiss repre-sentative. We believe this trend will continue and ultimately the appointment of a representative for Switzerland will be

a part of most due diligence questionnaires in Switzerland. It can also be argued that the minimal costs associated with becoming compliant make the choice an easy one – but it really all depends on how a manager wants to sleep at night.

GD: Th e amended CISA is only the beginning of a complete reshaping of the Swiss regulatory frame-work. Th e FFSA and FINA as well as FMIA are ante portas – what is your expectation about this? How will this change the market and what are the threats and opportunities?

IP: Any new regulation is a hurdle, in particular for smaller, emergent fi rms. Each additional regime might overburden its constrained resources unless the fi rm is running effi cient-ly with a high level of automation and systematic solutions. Th e new regimes will certainly lead to another increase in costs and also in complexity. Many investment fi rms or teams might not be able to stay abreast of all these changes or adapt their cost base or business model quickly enough. As a consequence, we expect that the recent new regulations will probably lead to closures of businesses and cause a de-gree of consolidation in the industry, resulting in a lack of in-novation and a reduction of off erings. Whether this is to the

advantage for the investors and whether the systemic risks will ac-tually decrease remains to be seen.

MQ: On its face, the impending regulation will indeed have a big impact on asset management and, in its current form, mirrors the broader trends across the EU. A lot of the text is still under discus-sion and implementation is one to two years away. However, much of the proposed legislation merely extends the current framework of that to which hedge funds, private banks and large institutional asset managers are already exposed, so the perceived threat is reduced.

Th e end goal, nonetheless, is to have all asset managers, and many asset management products, regulated. Th e real pres-sure will be on the small asset managers and family offi ces; how they will react is still unknown.

MC: Pertaining the evolving Swiss regulatory develop-ments from Bern, we support eff orts establishing reason-able criteria and guidelines necessary for the entire range of fi nancial service providers, large or small. Th ese devel-opments will hopefully deliver registration or authorised status for any and all aspiring fi nancial service providers, which is not the case today.

Furthermore, we feel the reasons we moved to Swit-zerland in 2008, namely, healthy lifestyle benefi ts, fi scal effi ciency and a stable political landscape, are even more important in today’s increasingly turbulent global eco-nomic and political environments. My personal view is that Switzerland is building on historic strengths and mak-ing necessary adjustments required for the 21st century. Our anticipation is that as we approach 2020, the presence

Colin Vidal has 20 years of experience gained across the fund and asset management industries as a hedge fund analyst, portfolio manager of several fund of funds as well as in business development for a private equity firm. Positions held were at Aforge Capital Management, Bay Capital management and Access International Advisors in New York

Mike Cartier is the COO and CCO of Krom River Trading AG, Baar Switzerland. He has been with Krom River since March 2008 and managed the relocation of Krom River from England to Switzerland in Q3 2008. Previously he was employed by Marex Financial and prior to that he worked for 21 years at Cargill Investor Services.

THERE IS THE HOPE THAT AN AGREEMENT WILL BE REACHED

BETWEEN SWITZERLAND AND THE REST OF THE EU

TO RECOGNISE EACH OTHER’S REGULATORY REGIMES

”

R O U N D TA B L E


of alternative investment managers will grow significantly in Switzerland.

Swiss tradition, mountainous stability and positive business cultural ethos will be difficult to find elsewhere.

CV: It is still early to say what the impact will be on the continued reshaping of the Swiss regulatory landscape. A full re-write is occurring as we speak on all areas of the fi-nancial sector. Our initial observations are that there may be a very interesting marketplace developing for institu-tional investors in Switzerland. In the heart of Europe, sur-rounded by countries that are very restrictive on the types of investments that can be made, in particular in the fund space, Switzerland may well look like an interesting juris-diction from which to manage an institutional investment portfolio. Of course, potential threats are also unknown – as the law takes shape one must monitor the various direc-tions that these discussions take.

GD: What are your expectations for the Swiss hedge fund industry this year? Any negative effects of the re-cent Swiss National Bank actions?

IP: In the short run I do not expect a lot of changes. In the long run Switzerland should get away from the pure advisory or private banking only model. By attracting and keeping the brightest talents, it can foster innovation in the financial sector and create a strong investment fund industry. With the Swiss Federal Institute of Technology in Zurich (ETHZ) we have one of the best universities globally right in our neighbourhood. We should use this

talent more wisely for creating truly differentiated offer-ings in the financial sector.

The recent change of the Swiss National Bank’s policy will have a dramatic impact on the profitability of those funds which are not denominated in Swiss Francs. This is less of an issue for larger managers who have a significant amount of assets under management. However, it creates yet another problem for smaller firms. An additional com-plication is of course that the FX hedging costs for CHF investors have increased heavily.

MQ: The majority of Swiss funds are US dollar denomi-nated, so the SNB action has a less direct impact on them. However, that being said, Swiss hedge fund managers tend to receive their fees in dollars but their expenses are largely in Swiss francs. As a result, the SNB action dramatically alters the operating margins of fund managers. Although a lot of this could have been hedged through forward FX transactions, it seems most managers had not done so. Prior to the SNB action, many managers were perfectly happy to have this ‘long dollar’ exposure, given that the US Fed was about to begin a tightening cycle.

MC: Continued volatility. The SNB actions had no nega-tive effect on the Krom River Group specifically. We have always been a USD-focused manager and consequently have managed the income statement challenges this pre-sents. The Krom River Commodity Fund does have a CHF share class. We do not hedge the non-USD share classes (EUR, SEK and CHF) but rather rebalance at month-end. All P+L is converted back to share class cur-rency month-end which enables each investor to remain in the specific share class currency chosen. Personally, I think the SNB will ultimately have an enhanced reputa-tion resulting from recent actions. The sobering impact of the SNB actions will certainly continue to reverberate, with long-term impact likely to provide a new reality for the Swiss economy and eventually the exchange rate.

CV: We are seeing an increasing number of funds looking to appoint a representative in Switzerland. This obviously tells us that Switzerland is still a major destination for funds wishing to raise assets and that it is also still a major centre for global private banking. Apart from a few victims of the CHF swings, we do not foresee any major effects on the Swiss hedge fund industry.

• ARGENTIÈRE CAPITAL employs a multi-strategy approach to investing in equities, with a strong focus on equity volatility strategies. The firm was founded in 2013 by a highly experienced investment team comprised of former members of JP Morgan’s Global Equities Proprietary Trading Group. Argentière is led by Deepak Gulati, who was global head of equity proprietary trading at JP Morgan from 2008-2012. Argentière is based in Zug, Switzerland with additional offices in New York and Chicago.

• KROM RIVER, founded in 2006, is a specialist commodity investment manager based in Baar, Switzerland and has been a FINMA authorised manager of collective investment schemes since December 2014. The flagship Krom River Commodity Fund is a discretionary multi-commodity product employing three main strategies across multiple markets. The fund invests in commodities through exchange-traded futures and options and utilises volatility, directional and spreads/arbitrage strategies. The investment team uses a combination

of macro and fundamental research to generate and test theses and technical analysis to confirm views and determine timing. The team trades 20-30 commodities in base and precious metals, agricultural and energy markets.

• TOLOMEO CAPITAL is a systematic asset manager headquartered in Switzerland. It focuses on systematic, technology-driven investment strategies and uses a fully proprietary trading platform. Tolomeo Capital was founded in 2011 as a spin-off of the quant and risk management unit of one of Switzerland’s largest institutional family offices.

• HUGO FUND SERVICES is a FINMA-regulated representative of non-Swiss funds, with expertise in alternative funds. Hugo Fund Services is composed of senior professionals from the alternative investment industry with extensive backgrounds as hedge fund and private equity allocators. It is fully independent with strong due diligence, legal and investment backgrounds.

COMPANY PROFILES

THE RECENT CHANGE OF THE SWISS NATIONAL BANK’S POLICY WILL

HAVE A DRAMATIC IMPACT ON THE PROFITABILITY OF THOSE FUNDS

WHICH ARE NOT DENOMINATED IN SWISS FRANCS

”

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S W I T Z E R L A N D 2 0 1 5

The local fund asset managers and market par-ticipants continue to face signifi cant challeng-es, similar to their international counterparts.

Th e industry is not only facing market-specifi c factors like economic challenges, in-creased competitive pressure coupled with

falling margins and profi tability, and geopolitical events, but is also more and more vulnerable to regulatory changes. Th e increased pace of new regulations requires signifi cant eff orts and resources not only to interpret and understand them, but to cope with the risks of non-compliance, increased scrutiny from regulators and higher expectations from all stakeholders.

KEY REGULATORY DEVELOPMENTSAll market participants, without exception, are under high pressure to fi nalise implementation of the revised CISA (Collective Investment Schemes Act) by the end of the transition period, 28 February 2015. Financial intermedi-aries, asset managers, distributors and legal representatives have to adapt as well to fulfi l the new CISA requirements, and under certain conditions, must apply for a new licence.

Th is implies a substantial amount of resources and energy all through the fund and asset management industry, involv-ing signifi cant investment. For numerous market players, higher transparency requirements and measures to improve investor protection have triggered major changes in their fee and distribution models. A number of asset managers have opted for a new organisation and business model.

Th e CISO-FINMA (Collective Investment Schemes Ordinance issued by FINMA) has been ad-justed in line with international regulatory changes and aims at in-creased investor protection as well as maintaining EU market access. Th e main areas covered by the re-vised CISO-FINMA relate to the use of derivative fi nancial instru-ments and their risk measurement, master-feeder structures, collateral management and task delegation.

CISO-FINMA sets out new re-quirements on independent risk management and risk control for fund management companies as

well as standards for managing derivatives risk and collater-al management, now aligned with the European legislation. Th e ordinance was only released in October 2014 and the consequences of the new risk management and control re-quirements set by FINMA still need to be understood in de-tail. It is, however, already clear that signifi cant investment in terms of technology and specialised human resources will be required by the fund management companies.

FUNDAMENTAL REGULATORY FRAMEWORK CHANGESTh ree far-reaching and game-changing laws are about to signifi cantly impact the regulatory framework of the Swiss fi nancial industry:

• Financial Market Infrastructure Act (FMIA FIN-FRA G)

• Federal Financial Services Act (FFSA FIDLEG)• Financial Institutions Act (FINIA FINIG)It is worth understanding the scope and potential re-

percussions of these three new codes, which have already captured a lot of market players’ att ention and, to a certain extent, have disconcerted a few.

FMIA Financial Market Infrastructure Act: FMIA is the answer to Dodd-Frank and EMIR, so to speak. Both Dodd-Frank and EMIR have an impact on Switzerland, in view of their extra-territorial reach. Nevertheless, the Swiss authorities want to regulate the use of OTC with its own regulatory framework. According to the legislator’s inten-tion, this new regulation will align Switzerland with global market developments and international requirements. It

should result in increased stability and competitiveness of the Swiss fi nancial market and will govern the fi nancial market infrastructure and derivatives trading in a more homogeneous way, combining the rules currently dispersed in various law texts into a consist-ent framework. Counterparties, central depositories and trade re-positories will be subject to a new general authorisation obligation.

Th e three key obligations set out by existing international rules for derivatives trading will in fu-ture apply in Switzerland too: sett lement of derivatives transac-

ALL MARKET PARTICIPANTS, WITHOUT EXCEPTION, ARE UNDER HIGH PRESSURE TO FINALISE IMPLEMENTATION OF THE REVISED CISA BY 28

FEBRUARY 2015

”

ANDRE VALENTE, HEAD OF FUND SERVICES, UBS SWITZERLAND, DISCUSSES THIS YEAR’S HOT TOPICS FOR THE SWISS FUND MANAGEMENT INDUSTRY

KEY DEVELOPMENTS IN THE SWISS FUND MANAGEMENT

INDUSTRY

André Valente is head of Fund Services Switzerland and head of the Swiss management company UBS. He has the overall responsibility in managing and developing the Fund Services business in Switzerland. He is a member of the Fund Services Management Committee.

F I N A N C I A L S E R V I C E S

1 2 H F M W E E K . CO M

S W I T Z E R L A N D 2 0 1 5

tions via central counterparties, reporting to a trade reposi-tory and enhanced risk control. FMIA is expected to come into force towards the end of 2015. The impact of the new OTC clearing and reporting obligations on processes and technology should not be underestimated and will involve significant efforts for the Swiss financial industry.

FFSA Federal Financial Services Act: planned to initi-ate in 2017, the FFSA’s primary intention is to enhance the investor’s protection and consequently harmonise the Swiss legal framework with the conduct of business rules in the EU, particularly with the MiFID-related set of rules. By implementing similar regulations in Switzerland, the legisla-tor is optimistic about Switzerland continuing to enjoy ‘un-restricted’ access to the EU’s financial market.

FFSA’s main proposed features are:• Improved client protection, including: – new client classification approach, resulting in distinct

information duties by financial service providers– enforcement of civil claims – reversal of the burden of proof – reinforcement of the mediation and conciliation sys-

tem (ombudsman institution)– introduction of an arbitration tribunal for disputes

against financial service providers and of a litiga-tion fund in favour of presumably damaged clients

– higher transparency and information meas-ures, in particular by providing extensive docu-mentation to the client during the advisory process and potential legal procedures

– new, uniform prospectus requirements for securities publicly offered or traded, aiming at suit-ability and appropriateness checks in favour of the investors

– collective redress procedures including inno-vative interest group settlements actions

• Cross-border regulations affecting foreign financial services providers, including the duty to register for unlicensed foreign mar-ket participants

• New requirements for qualification and reg-istration of client advisers

The FFSA has the potential to impact the Swiss financial regulatory landscape far more than any other fi-nancial law implemented in the last few decades.

FINIA Financial Institutions Act: closely related to FFSA, the FINIA is also likely to come in 2017 and will control the licensing of financial service providers and govern the supervisory regime for financial institutions in a new, uniform legislation and affect particularly inde-pendent asset managers, who are not yet required to be licensed, while managers of collective investment schemes are already supervised by FINMA. This is one of the most significant implications of this new legislation. It is unclear if FINMA or a new supervisory organisation will be in charge.

An advantage of FINIA is the ‘cascade’ effect, which means that, as opposed to the current approach, a licence granted for a specific area will include the approval for re-lated activities at a lower level. For instance, a bank will no longer need to have an additional securities dealer license. Interestingly, FINIA may include the obligation to assess if assets were properly reported for tax purposes, which

amounts to the introduction of a legally binding ‘white money strategy’.

Obviously, the local industry is not only affected by spe-cific Swiss legislation changes, considering the importance of cross-border business for Swiss asset managers. AIFMD is a perfect example of an EU regulation with significant impact on the organisation structure and business model of many Swiss market players. With EU member states start-ing to abandon private placement regimes, Swiss managers have a competitive disadvantage to EU managers, with dis-tribution of alternative (and non-alternative) funds becom-ing more difficult. Relying on reverse solicitation will not be a sustainable strategy. In spite of the uncertainties related to the introduction of non-EU funds passporting, planned to come into force in 2016, Swiss fund promoters have to imperatively rely on AIFMD compliance.

OPPORTUNITIES FOR THE SWISS FUND MANAGEMENT INDUSTRYThe Swiss fund management industry has sufficient com-petitive advantages and strength which allows for a measure of optimism. On one hand the new legislative framework brings its share of improvements and may reinforce the at-

tractiveness of the Swiss Financial Centre. Funda-mentally, the harmonisation of cross-border rules and new registration requirements, as well as the supervision of foreign financial providers, is a wel-come development. It increases Swiss investors’ protection and, simultaneously, partially offsets the competitive disadvantage of Swiss market players in an international context.

On the other hand, many market players warn that excessive risk and administrative burden could jeopardise Switzerland’s international competitiveness. Further, the Swiss finance in-dustry has expressed a clearly negative position towards the envisaged juridical enforcement in-struments in view of the radical impact on exist-ing jurisprudence.

For specialised business areas, the regulatory changes will offer some new, specific opportuni-ties. Increased regulations and scrutiny by the su-

pervisor bring specialised skills into the field. Risk and data management and reporting become competitive success factors for fund asset managers. Those who are able to give their business a competitive edge, investing into technology and qualified human resources early enough, are likely to offset the potential inconveniences of increased regulatory burden by a better market position, satisfied clients and growing business volume.

Moreover, market participants with a specific, boutique-like offering and competence – asset managers, asset servic-ers, legal experts, risk management consultants – have an opportunity to leverage their expertise and support those who do not have the resources and critical scale.

The fund management industry is definitively gaining momentum in Switzerland. The market players that suc-cessfully adapt to the new regulatory and market frame-work will continue to build a centre of excellence in fund and asset management and will have the opportunity to export their competence and innovative energy far be-yond the Swiss borders.

THE LOCAL INDUSTRY IS NOT ONLY AFFECTED BY

SPECIFIC SWISS LEGISLATION CHANGES, CONSIDERING THE

IMPORTANCE OF CROSS-BORDER BUSINESS

”

We don’t just tick boxes.

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We provide a bespoke response in a template world.

Our services are what you would expect from your Prime Broker and include:

lending and web based reporting. But how we deliver these services is what

on the needs of start up and emerging managers.

It’s why we’ve won the HFM Week Award for “Best Boutique Prime Broker“ for two years in a row.

[email protected]

www.GlobalPrimePartners.com


S W I T Z E R L A N D 2 0 1 5

For all existing foreign investment funds pro-posed to Swiss-based investors, there is a man-datory obligation to appoint a Swiss regulated representative and paying agent. The deadline to be compliant is the 1 March 2015. For new-ly created funds this obligation is immediate.

Since Switzerland is not part of the European Union, the Alternative Investment Fund Managers Directive (AIFMD) rules don’t apply. For distribution of foreign investment funds the equivalent new regula-tion in Switzerland focuses on the product instead of the man-ager. As a consequence, complex-ity and associated costs of being compliant with new Swiss regula-tion are low when compared with AIFMD. The Swiss model for regulation of foreign investment funds works on a full delegation of responsibilities: the Financial Market Supervisory Authority (FINMA) delegates the supervi-sion of foreign investment funds distributed to Swiss-based clients to regulated companies called Swiss representatives.

The revision of the Swiss Federal CISA (Collective Investment Schemes Act) entered into force in January 2013. Until the 28 February 2015 there is a transition pe-riod to allow all concerned entities to be compliant with the new regulation.

Among other things, the newly introduced CISA revi-sion now requires that all foreign investment funds ad-dressed to Swiss investors must have, before the end of February 2015, a Swiss regulated representative in order to be allowed for distribution. The need for a Swiss regu-lated representative already existed in the past but only for foreign investment funds approved for retail distribution in Switzerland.

SWISS REPRESENTATIVESThese Swiss-based companies are highly regulated and must boast well-defined internal procedures that had to apply for a licence from the FINMA. The representative serves the foreign investment funds with regard to Swiss

investors and FINMA. Besides the Swiss representative, the appointment of a Swiss paying agent (i.e. a bank) is also mandatory for a foreign investment fund, if distrib-uted in Switzerland.

DOES A FOREIGN INVESTMENT FUND NEED A SWISS REPRESENTATIVE?The pre-condition to understand if a foreign fund needs

a Swiss representative is simple: it implies to know if a foreign in-vestment fund is doing any dis-tribution activity in Switzerland. According to the revised CISA the distribution of collective in-vestment schemes is defined as: ‘any offering of and advertising for collective investment schemes that is not exclusively directed at investors as: regulated financial intermediaries such as banks, securities traders, fund manage-ment companies and asset man-agers of collective investment schemes, as well as central banks; and regulated insurance institu-tions.’ Proposing an investment fund to all other entities, such

as pension funds, independent asset managers, high-net-worth individuals, etc., is considered distribution.

DISTRIBUTION OF FOREIGN INVESTMENT FUNDS The concept of distribution has replaced that of public solicitation, which was the one prevailing in the applica-tion of the latest CISA; this changed radically. Under the revised CISA, basically all marketing activities will be re-garded as distribution, unless such activities are directed at specific prudentially supervised entities (regulated quali-fied investors). The law has evolved especially for funds addressed to qualified investors (i.e. private placement) which were not regulated in the past. While in the past, requirements for qualified investors were minimal, as of 1 March 2015 all the funds (for qualified investors and/or retail investors) must have a regulated representative in Switzerland. For example, if a foreign investment fund sends emails to potential clients it is considered distribu-tion. After appointing a Swiss regulated representative, a

COMPLEXITY AND ASSOCIATED COSTS OF BEING

COMPLIANT WITH NEW SWISS REGULATION ARE LOW WHEN COMPARED

WITH AIFMD

”

LUIS PEDRO AND RODOLPHE CHATAGNY, OF OLIGO SWISS FUND SERVICES, TALK ABOUT THE UPCOMING DEADLINE TO APPOINT A SWISS REGULATED REPRESENTATIVE

DOES MY FUND NEED TO MEET THE 1 MARCH DEADLINE FOR A

REPRESENTATION SERVICE?

Luis Pedro has a solid experience in the analysis, selection process and due diligence of investment funds since 2007. Pedro was the chief investment officer of a fund of hedge funds. He is the chief executive officer of Oligo.

Rodolphe Chatagny has held the positions of chief investment manager and chief operational manager for fund of hedge funds management companies for 18 years. He is the risk and compliance officer of Oligo.

R E P R E S E N TAT I O N S E R V I C E S


foreign fund (or any third-party marketer that is a regulated distributor) will be allowed to continue to be distributed in Switzerland.

QUALIFIED, NON-QUALIFIED AND REGULATED QUALIFIED INVESTORSThere’s a little subtlety in the Swiss legislation regarding the type of investors: it differentiates between qualified investors and regulated qual-ified investors (often called ‘super-qualified’ investors).

Banks, insurance companies and regulated CISA Asset Managers (fund managers that manage investment funds above CHF 100m in Switzerland) are regulated qualified investors. It will not be deemed distribution the contact and/or the purchase of fund units on behalf of clients by regulated qualified investors.

Pension funds, independent asset managers (acting on behalf of clients under a discretion-ary asset management contract), HNWI and family offices are considered qualified inves-tors. It is considered distribution to send any information of a foreign investment fund to these investors.

All other investors are non-qualified (retail) investors and, besides a Swiss representative and paying agent, foreign funds addressed to these clients must apply for a FINMA’s specific approval.

TYPES OF SWISS REGULATED REPRESENTATIVEAs defined by FINMA, there are two distinct types of regulated representative companies. The first is a lighter version and was introduced with the revision of CISA: the license to represent foreign investment funds that are addressed to Swiss qualified in-vestors only.

The second is the full representation license that allows few companies to represent funds addressed to both Swiss qualified and non-qualified (retail) investors. The choice of using one or the other depends mostly from the type of fund investors: is the foreign investment fund distributed to qualified investors only, or to both qualified and retail investors? Having a foreign investment fund approved for retail distribution in Switzerland requires a FINMA ap-proval. The complexity of approval depends on the fund’s legal structure, domiciliation and strategy. Interestingly, European Ucits funds can be relatively easily approved for retail distribution in Switzerland. Foreign funds that are approved for retail distribution in Switzerland will re-quire a Swiss representative that has the full representation license.

THE IMPORTANCE OF DUE DILIGENCE FROM THE SWISS REPRESENTATIVEOne of the main goals of the new Swiss regulation is to guarantee better protection for the investors, in other words, to try to avoid that foreign investment funds with-out quality are proposed to Swiss investors. The fund’s image and reputation in Switzerland can be easily linked to those of the Swiss representative. In this context, it is

of most importance to choose a Swiss representative with the capacity to make a proper operational due diligence on the fund and on its service providers. The Swiss repre-sentative should also be able to propose and facilitate any modifications needed in the funds’ documentation or pro-cedures in order to comply with the Swiss law.

IN SUMMARYAs European AIFMD and Fatca are subjects that most of fund managers already dealt with, it’s now time to deal with CISA in Switzerland. In this context, It is Important to retain the following points:• If a fund addresses to at least one existing or prospective

Swiss-based investor (that is not a regulated qualified in-vestor), this is considered distribution;

• In the process between the investment fund and the final investor, the fund needs to assess if there is any activity that is considered distribution under the Swiss regula-tion. For example, if a bank adds the fund to a recom-mendation list, it will be considered distribution;

• Only regulated qualified investors can be contacted with-out being considered distribution.

For any questions regarding funds representation and distribution, please feel free to contact Oligo Swiss Fund Services (a regulated Swiss representative for funds ad-dressed to both qualified and retail Swiss investors): [email protected] n

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MAJOR BANKS ARE drop-

ping administration services for

smaller hedge fund managers,

HFMWeek has learned.

HSBC, BNY Mellon and

Citi have undertaken business

reviews of hedge fund clients

and shifted strategy, leading to

several managers with less than

$500m in AuM being dropped.

BNY Mellon is handing out

notice periods as short as 90

days to existing clients to find

new administrators. It is under-

stood HSBC has also shed a

number of clients and is turning

away business below a certain

level. HFMWeek has been told

Citi is undertaking a similar

review of business and shed-

ding clients.

A COO of a $170m manag-

er, who was dropped by BNY

Mellon with 90 days’ notice,

said it was “annoying” to be

dropped so abruptly.

He said: “We didn’t see this

coming when we signed the

contract. It’s clear that some of

the bigger names have decided

to turn their back on the smaller

manager sector. There are still

plenty of people who will still

talk to you and give you some

sensible proposals. Some of the

smaller administrators can give

good service but without the

bank name.”

BNY Mellon insisted it was

still committed to

hedge funds, pointing

BNY Mellon, HSBC and Citi

becoming more selective

BY SAM DALE

03

COMMENT W I L L A SSE T S EGREGAT ION BENEF I T I N VESTORS? 14

Major bank

admins cutting off

smaller managers

ASSETS UNDER

ADMINISTRATION

SURVEYHFMWEEK’S 23RD BIANNUAL

AUA SURVEY – PART 2: FUNDS

OF HEDGE FUNDS ANALYSIS 16

The long and the short of it

ISSUE 363 11 December 2014

CLOSURE 11

PRAXIENT CAPITAL CLOSING PANTHER EVENT-DRIVEN FUND

European equity and credit vehicle to shut after redemptions

PRIME BROKERAGE 05

POTENTIAL PB ENTRANTS LOOK FOR WHITE-LABEL SOLUTIONS

Experts predict “creative solutions” will develop

REGULATION 07

EU RETHINKS BAN ON BANKS FROM BACKING HEDGE FUNDS

Lord Hill warns over lack of agreement in private letter

ANALYS IS 19HFMWeek looks back at the highs

and lows of the past 12 months

2014REVIEW OFTHE YEAR

s indd 1

09/12/2014 16

www.hfmweek .com

F O R M E R C H E Y N E

CAPITAL partner Simon

Davies has hired ex-Eclecti-

ca COO Paul Bramley as his

event-driven firm Sand Grove

Capital Management received

its FCA permissions this week,

HFMWeek has learned.Former Cheyne Capital

colleague Anooj Unarket has

also joined the start-up with

Thomas Roberts, previously

head of sales and market-

ing at systematic firm Octave

Investment Management,

leading investor relations.Davies left his position as

head of European event-driv-

en trading at $6bn Cheyne

Capital in September. Unarket,

who was a partner at Cheyne,

left in July shortly after news of

Davies’ plans broke. Two other members of

Cheyne’s event-driven team,

Michel Massoud and Joseph

Gebran, left last year, although

it is not known whether they

will be involved with Sand

Grove.Bramley left Hugh Hendry’s

Eclectica Asset Management

last May as part of a cost-cut-

ting drive sparked by a sus-

tained period of investment

losses and redemptions.Bramley was the most sen-

ior of several departures at

the London firm, which was

founded in 2005 when Hendry left

Paul Bramley joins former Cheyne partner’s new launch

BY JASMIN LEITNER

03

COMMENT 20 1 5 P RED I C T I ONS

14

Ex-Eclectica COO hired as Sand Grove

gets FCA go-ahead

WHO IS SET TO CAPITALISE ON BANK

ADMIN PULL-BACK?HFMWEEK FINDS OUT WHICH

FIRMS WON’T BE DITCHING

LOWER VALUE ADMIN CLIENTSANALYSIS 16


ISSUE 364 15 January 2015

LEGAL 07

NAYA AND CO-FOUNDER REACH LEGAL SETTLEMENT

Bruce Emery claimed he was owed a third of the business

REGULATION 03

LACK OF EU INVESTMENT PROMPTS DEREGISTRATIONS

Exiting AIFMs aim to do so before Annex IV deadline kicks in

AIFMD 05

UK ANNEX IV PLATFORM STILL NOT ACCEPTING NON-UK AIFMS

FCA says fixing Gabriel problem is a top priority

ANALYS IS 18

HFMWeek assesses what 2015 may

have in store for the hedge fund

sector

PREVIEW

001_003_HFM364_News.indd 1

13/01/2015 16:54

www.hfmweek .com

LONDON MACRO manager

Comac Capital is returning

all external capital to inves-

tors after losing almost $100m

following the Swiss National

Bank’s (SNB) decision to

remove the Swiss currency peg.

Colm O’Shea’s firm informed

investors on Tuesday of the

decision to return $1bn follow-

ing what he described as “the

biggest loss of his career”.

Comac, which was founded

by O’Shea in 2005 and was

backed by Balyasny Asset

Management (BAM), will con-

tinue to operate its offshore

fund as an internally managed

vehicle, running roughly $150m

of O’Shea’s personal capital.

Comac lost 8% – around

$96m – when the SNB decided

to scrap the Swiss franc’s cap

against the euro, with the franc

surging as much as 41% versus

the euro last week to the dismay

of many traders, with Comac’s

fund down -11% YTD.

The SNB move, which effec-

tively “side-swiped” Comac,

according to a person familiar

with the firm, has also caused

firms such as Everest Capital to

shutter funds.

Comac confirmed there

would be a number of staff

redundancies but declined to

comment on the exact number.

It says “key staff” will remain

but titles have yet to

be confirmed.

London macro manager to

return external capital

BY JASMIN LEITNER

03

COMMENT HARNESSING DATA TO IMPROVE YOUR MARKETING14

Swiss National

Bank move brings

down Comac

THE INVESTOR

TRENDS SHAPING

2015FROM THE CONTINUING DEBATE

AROUND FEES, TO RESPONSIBLE

INVESTMENT IN HEDGE FUNDS

ANALYSIS 17



LAUNCH 11

DE SHAW RE-OPENS STATISTICAL ARBITRAGE FUNDS

Investors offered fi rst direct access to strategy since 2007

LAUNCH 03

ECLIPSE CAPITAL LAUNCHES CHINA CTA

New fund part of joint venture in Shanghai free-trade zone

ADMIN07

EXPERTS SAY CITI MAY STRUGGLE TO SELL OFF ADMIN BUSINESS

Market participants say rivals may try and lure bank’s clie

nts away

ANALYS IS 20Hedge funds hope new European

priorities will create lending

opportunities

CALMER WATERS

20/01/2015

www.hfmweek .com

US AND OTHER non-EU hedge fund managers have

expressed frustration over the lack of clarity and consisten-

cy from the FCA on AIFMD Annex IV reporting ahead of

this weekend’s deadline.The FCA late last week cir-

culated an email, which was seen by HFMWeek, to some

managers stating that those who have not received login

details to submit Annex IV reports by Saturday’s deadline

would be permitted an exten-sion until the UK regulator

gives them access.

Many non-UK AIFMs mar-keting into the UK still can-

not enter the regulator’s filing platform Gabriel, despite being

required under the Directive to file for the first time by

Saturday.The FCA’s email followed a Q&A document it had posted

on its website on 20 January, which said: “We will only accept

transparency information sub-mitted via Gabriel. We will not

accept the failure to register on Gabriel as a legitimate reason

for not submitting transparency information.”The Q&A contradicted ear-

lier private emails from the FCA to market participants,

directing them to file Annex IV reports by email

if they did not have

UK regulator issues series of conflicting messages to

hedge fundsBY MAIYA KEIDAN

03

C O M M E N T DODD -FR ANK FACES INCRE AS ING PRESSURE14

US managers “frustrated” by FCA Annex IV confusion

REDEFINING RELATIONSHIPSHFMWEEK TAKES A LOOK AT SOME

OF THE TRENDS DEFINING PRIME BROKERAGE AND THE OUTLOOK FOR THE NEXT 12 TO 18 MONTHS

ANALYSIS 20



LAUNCH 10

SILVER RIDGE EYES $500M LAUNCH AND $1BN SOFT-CLOSE

North American and EU investors providing seed capital

CHINA 03

WINTON CHINA CTA DOUBLES ASSETS IN TWO MONTHS

Fund enjoys slew of subscriptions near end-2014

ALLOCATION 08

CALSTRS EXTENDS HF ‘EXPERIMENT’ BY NEARLY A YEAR

California pension scheme has $863m invested in hedge funds

SNAPSHOT

THE ALPHAPIPE-HFMWEEKSERVICE PROVIDER

Q 4 : 1 4Latest data on the top 20 admins, auditors, custodians and prime brokers

for SEC-registered hedge fundsANALYS IS 20

001_003_HFM366_News.indd 1

T I C I N O F I N A N C I A L C E N T R E


S W I T Z E R L A N D 2 0 1 5

The Swiss fi nancial centre has att racted great interest in the economics pages of a multi-tude of international newspapers in recent months. Media att ention has been particular-ly focused on Switzerland’s proposed partici-pation in automatic exchange of information,

which will contribute to making the Swiss fi nancial centre even more integrated with the rest of the world, but will in-evitably take away one of the country’s historic strengths, namely banking secrecy. On the other hand, commenta-tors have also concentrated on the international fallout of the recent currency issues experienced by the Swiss franc – turmoil that has once again underlined the importance of the fi nancial centre in the inter-national arena. Th e scope of the changes under way is therefore momentous, leading analysts and observers all over the world to refl ect on the future role of the Swiss fi nancial centre and its ap-peal for operators.

HFMWeek (HFM): Is the Swiss fi nancial centre still a good choice for asset management?Franco Citt erio (FC): Although we are facing a major turning point and a considerable para-digm shift , the Swiss fi nancial cen-tre certainly is, and will remain, an att ractive location for many dif-ferent types of fi nancial businesses. I would undoubtedly include asset managers among these, as they can operate in a context that I would describe as positive from several diff erent perspectives.

First and foremost, there is our simple, modern legisla-tive framework, which is fully harmonised with European and US legislation aft er the introduction of the new CISA (Collective Investment Schemes Act), in force since 2013.

Everything a ‘country system’ like the Swiss one has to of-fer managers is of course equally important. I’m talking about political, economic, social and legal stability, and moderate taxation for both legal entities and individuals – all of these are important factors for anyone operating in global markets.

Finally, I would not overlook the opportunities off ered by operating in a market of private bankers. Physical prox-

imity to the capital allows managers to get a full picture of potential investors’ requirements and meet them in full. In short, yes, I think Switzerland will continue to be a good place for asset management in both traditional and alter-native funds.

HFM: Will the current changes lead to growth in asset management at the expense of private banking?FC: Private asset management is the main pillar of the Swiss fi nancial sector by a wide margin and I am convinced that it will remain the sector’s core business in the future too. I think that alongside the private banking sector there are substantial margins for growth of other segments on

a complementary basis, starting with asset management. We must remember that the Swiss fi nancial centre, with its traditional know-how and capacity for innovation, is in an excellent position – po-litically, economically and geo-graphically alike – to understand the needs of today’s investors. In the future we may also see high-net-worth individuals coming here in search of a personal ap-proach and cutt ing-edge invest-ment solutions. Other interna-tional fi nancial centres operating with much larger numbers oft en have to adopt mass solutions. Th is ‘boutique’ positioning is

where I see major opportunities for Switzerland.

HFM: Does a smaller fi nancial centre like Lugano have a role to play as well? FC: Defi nitely. As the main fi nancial centre of Switzer-land’s most southerly canton, Lugano is the third leading Swiss fi nancial centre aft er Geneva and Zurich, with a tra-dition dating back over 100 years. Historically, the Canton of Ticino has been the main link between northern and southern Europe in terms of fi nance and other areas as well. Th e city is two hours by car from Zurich, but at the same time it is also open to the economy and production centre of Lombardy and Milan, which is less than 60 km away – a pool of wealth with nearly 10 million people con-centrated in a fairly small area.

I THINK SWITZERLAND WILL CONTINUE TO BE A GOOD PLACE FOR

ASSET MANAGEMENT IN BOTH TRADITIONAL AND

ALTERNATIVE FUNDS

”

FRANCO CITTERIO, DIRECTOR OF THE TICINO BANKING ASSOCIATION AND CHAIRMAN OF TICINO FOR FINANCE, DISCUSSES THE PAST, PRESENT AND FUTURE OF THE SWISS FINANCIAL CENTRE AND ASSET MANAGEMENT SECTOR

SWITZERLAND AND THE FINANCIAL CENTRE OF

TOMORROW

Franco Citterio began his banking career in 1994, working in the business and financial advisory area. Citterio has been the director of the Ticino Banking Association since 2003 and the president of Ticino for finance since 2011.

T I C I N O F I N A N C I A L C E N T R E


S W I T Z E R L A N D 2 0 1 5

This role as a geographic, economic and cultur-al ‘bridge’ has already allowed the financial centre of Lugano to move on from focusing on private banking for the Italian market to opening up to various other markets – from eastern Europe to South America and the entire Mediterranean area – and developing a substantial, growing com-munity of hedge fund managers and commodity traders.

HFM: Why should an asset manager choose Lugano?FC: Firstly, both Lugano and the Canton of Ti-cino in general enjoy the benefits of stability and economic liberalism that are characteristic of Switzerland.

However, the Ticino financial centre’s favour-able context is not just down to the framework conditions provided by the Swiss country system. These are supplemented by ancillary services, such as interna-tional-level law firms and ICT infrastructure, as well as lev-els of safety, administrative streamlining and willingness to dialogue on the part of the institutions that are only possi-ble in an environment that, although it is highly developed, remains people-orientated. Quality of life is the icing on the cake: in Ticino, the world-renowned Swiss quality of life, especially in terms of the healthcare system, public transport network, safety and education, combined with an Italian flavour instantly recognisable in the lightly Latin environment and pleasingly Mediterranean climate, which

make Switzerland’s southernmost canton a gem when it comes to work-life balance.

HFM: Is work being done nationally or locally to support the industry’s development?FC: The first and most important aspect is the constant effort undertaken to improve the frame-work conditions for financial business in Switzer-land. Beyond this key commitment at a political and institutional level, several initiatives have been taken in recent years to provide tangible support to the development of asset manage-ment in Switzerland.

At a national level, the Swiss Asset Management Initiative has been under way for a couple of years with the central involvement of the Swiss Banking Association, aiming to enhance Switzerland as a location for asset management. At the same time,

local initiatives with the same focus are also afoot. I’ll gladly mention Ticino for Finance, the association I chair, whose primary aim is to introduce the Ticino financial centre and make it better known abroad. To do this, the association uses a targeted approach to provide information to opera-tors who may be interested in locating their business in Ti-cino, and acts as an institutional contact point. I particularly want to underline the institutional aspect of the initiative, which allows operators interested in the financial centre to find out about it in a neutral way, without having to filter out the inevitable commercial influences from information received from consultants and service-providers.

SEVERAL INITIATIVES HAVE BEEN TAKEN IN RECENT

YEARS TO PROVIDE TANGIBLE SUPPORT TO THE DEVELOPMENT OF

ASSET MANAGEMENT IN SWITZERLAND

”

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* Valartis Liechtenstein entities combined


S W I T Z E R L A N D 2 0 1 5

The partial revision of the Swiss Collective In-vestment Schemes Act (CISA) and its accom-panying ordinance (CISO) entered into force on 1 March 2013. With these new regulations, Switzerland has not only aligned its licensing regime with AIFMD requirements, by extend-

ing them to include AIFMs of foreign AIFs, but has also brought its fund distribution rules closer to MiFID stand-ards. Th e transitional period for the implementation of the new rules will expire on 28 February 2015.

Th e new Swiss framework was further specifi ed upon the implementation of the Swiss Financial Market Supervisory Au-thority’s (FINMA), circular RS 2013/9, distribution of collective investment schemes’ on 1 Octo-ber 2013. In addition, the board of the Swiss Funds & Asset Man-agement Association (SFAMA) passed a new code of conduct on 7 October, 2014, which was sub-sequently recognised by FINMA on 14 November 2014 as a mini-mum standard, which came into force on 1 January 2015, and now must be put into practice until 31 December, 2015.

DISTRIBUTION REVISITEDUnder the new rules, distribution-like activities may be di-vided into three groups, each with diff erent requirements. Firstly, there is permissible activity that does not trigger regulation; secondly, there is distribution of funds to qual-ifi ed investors with a certain degree of applicable regula-tion; and thirdly, there is distribution to non-qualifi ed, i.e. retail investors.

Th e fi rst category applies to distribution activity solely directed at investors according to Art 10 (3) lit A and B CISA. Th ese are regulated fi nancial intermediaries such as banks, securities dealers, fund management companies, asset managers of collective investment schemes, central banks and regulated insurance institutions. Also, so called ‘reverse solicitation’ is still possible without triggering li-censing needs. Th is means providing information and sub-scribing to collective investment schemes at the investor’s instigation or request, in the context of investment advi-sory agreements or for execution-only transactions.

Investment advisory agreements are understood to mean long-term advisory relationships in return for a fee and must be concluded with a regulated fi nancial inter-mediary or an independent asset manager according to Art 3 para 2 lit c CISA. Similarly, providing information and subscribing to collective investment schemes based on a writt en discretionary asset management agreement entered into with a regulated fi nancial intermediary or an independent asset managers subject to the Anti-Money Laundering Act and governed by the code of conduct is-sued by a specifi c industry body recognised by FINMA

provided that such agreement complies with the standards of an industry body recognised by FINMA.

Th e second category includes distribution aimed at qualifi ed investors as defi ned in Art 10 CISA (excluding those in the fi rst category). Th ese are public entities and retirement benefi ts institutions with professional treasury operations as well as high-net-worth individuals who have explicitly declared in writ-ing that they wish to be treated as qualifi ed investors (Opt In), are aware of the risk associated with the investment and can also

demonstrate that, at the time of investment in an AIF, they either have assets of at least CHF 500,000 and suffi cient knowledge to assess the investment’s risk based on their education and professional experience or comparable ex-perience in the fi nancial sector, or that they have assets of at least CHF 5m at their disposal. In the latt er case, the re-quired assets of CHF 5m may also include real estate hold-ings of up to a maximum of CHF 2m in net value (market value less any mortgage on the property). ‘Comparable experience’ may be assumed if the investor has conducted transactions of signifi cant size in the relevant markets at an average frequency of 10 per quarter over the previous four quarters. In this context it is important to note that accord-ing to Art 6a CISO, which has entered into force on 1 Janu-ary, 2015, that in the case of private investment structures which have been established for one or more individuals, the declaration can be made by the person in charge of managing the structure.

UNDER THE NEW RULES, DISTRIBUTION-LIKE ACTIVITIES

MAY BE DIVIDED INTO THREE GROUPS, EACH WITH DIFFERENT REQUIREMENTS

”

PWC’S DR GUENTHER DOBRAUZ-SALDAPENNA AND DIETER WIRTH DISCUSS SWITZERLAND’S REGULATORY CHANGES AND THE UPCOMING IMPLEMENTATION OF FURTHER RULE CHANGES

NEW SWISS RULES FOR FUND DISTRIBUTION AND MANAGERS

Dr Guenther Dobrauz-Saldapenna is the leader of PwC Zurich’s Legal Regulatory Services practice. Previously, he practised with Deloitte and as an attorney. For a number of years he also served as legal counsel to a VC/PE firm and an international hedge fund.

Dieter Wirth is a partner in PwC Zurich’s Tax and Legal practice and the asset management industry leader of PwC Switzerland. He is an attorney-at-law, a Swiss certified tax expert and a board member of the Swiss Private Equity & Corporate Finance Association (SECA).

F U N D S E R V I C E S


Independent asset managers are not considered quali-fied investors themselves, although distribution to their clients is deemed to be distribution to qualified investors, but it is still possible to approach them if they undertake in writing to use the information received only for clients that are qualified investors within the meaning of Art 10 CISA.

Additional qualitative requirements at the product-specific level now apply to those who actively distribute AIFs to qualified investors other than insurance compa-nies and the supervised financial intermediaries indicat-ed above. Most notably, the distributor has to be licensed and supervised for such activity either in Switzerland or in his or her country of domicile (provided adequate and recognised supervision is in place there), and a Swiss representative and Swiss paying agent for the AIF must be appointed before 1 March, 2015. In the case of a for-eign distributor, an additional agreement between a local Swiss representative and the distributor is required. The AIF itself does not require FINMA authorisation.

The third category is distribution to retail investors. This requires permission pursuant to Art 13 (1) CISA and prior FINMA approval of the relevant fund docu-ments. Again, a Swiss representative and paying agent must be appointed on behalf of the fund.

Stricter obligations apply as well to the information that must be provided to investors about any type and amount of commissions or other monetary benefits re-ceived in connection with the distribution of AIFs. As of 1 January 2014, new point-of–sale due diligence require-ments will apply in Switzerland. Any distribution activity will trigger the duty to take minutes as well as record the reasons and recommendations that have led to an investment in AIFs.

LICENSING OF MANAGERS, BRANCHES AND REPRESENTATIVESAs of 1 March, 2013, representatives of foreign collective investment schemes distributed to qualified investors are subject to authorisation and supervision by FINMA. This also applies to banks, insurance companies, asset managers of collective investment schemes and securities dealers who are not yet licensed as representa-tives of collective investment schemes for non-qualified investors. As a consequence representa-tives of foreign collective investment schemes for qualified investors who were already acting as such before the entry into force of the revised CISA must comply with the new rules by applying for a licence by 28 February, 2015. Those not yet authorised as representatives of foreign collective investment schemes for qualified or non-qualified investors are required to file an application for authorisa-tion with FINMA before the end of February. The same is true for Swiss-based managers of foreign AIFs and for Swiss branches of foreign asset managers unless de mini-mis exemptions apply. In this context we would again like to stress that it is important to determine whether activi-ties newly requiring authorisation are effectively carried out in or from Switzerland rather than focus on the legal or contractual designation of the function.

NEW SFAMA CODE OF CONDUCTThe refined SFAMA code of conduct (SFAMA CoC) consolidates a wealth of previously appli-cable regulations and in particular defines the duty of loyalty and due diligence and the duty to provide information as required by CISA. It is applicable to asset managers of collective investment schemes as well as to representa-tives of foreign collective investment schemes. The SFAMA CoC requires that a number of important topics are specifically tackled by implementation as specific internal regulations or directives by intermediaries. These topics in-clude:

Securities trades allocation as well as of trad-ing related costs and expenses Selection of trading counterparties via which the transactions are settled (best execution); Organisational measures regarding identifica-tion, prevention, elimination, monitoring and disclosure of conflicts of interest; Personal account dealings of staff and receipt and granting of discounts and other benefits;

Exercise of membership and creditors’ rights; Participation in class actions; Internal control system (ICS), risk management and compliance; (Sub-) engagement of distributors

The deadline for the implementation of the new SFAMA CoC is 31December, 2015.

AS OF 1 MARCH, 2013, REPRESENTATIVES OF FOREIGN COLLECTIVE

INVESTMENT SCHEMES DISTRIBUTED TO QUALIFIED INVESTORS ARE SUBJECT TO AUTHORISATION AND SUPERVISION BY FINMA

”


S W I T Z E R L A N D 2 0 1 5

HFMWeek (HFM): Can you tell us about Bastions Partners Offi ce?Louis-Frédéric de Pfyff er (LFP): BPO was founded in March 2013, as a spin-off from Heritage Bank, by its three partners Antonio Bravo, Eric Heuzé and myself. Each part-ner has more than 30 years of experience in investment management and asset allocation for private and institu-tional clients.

BPO has several lines of business. We’re an independ-ent asset manager focusing on alternative investments and act as a facilitator between US-based managers and the Ucits market, helping with the structuring and distribution of Ucits funds. More recently, BPO has registered with FINMA to act as representative of foreign funds under the re-vised Swiss Collective Investment Schemes Act (CISA). Th e three managing partners are supported by nine experienced profession-als, all based in Geneva.

HFM: How did BPO get into the activity of foreign funds’ repre-sentation?LFP: Th is is a result of the new regulatory environment and of our experience and knowledge of the hedge fund industry. As you know, the revised CISA will fully come into force on 1 March, 2015, and has several eff ects on non-registered foreign funds that want to distribute in the Swiss market. Such funds should have a representative and a paying agent. Th e representative must be a FINMA li-censed entity and the paying agent must be a Swiss bank. Th e distribution of non-registered foreign funds is now regulated, restricted to qualifi ed investors and no longer under the regime of private placement.

Given the new Swiss regulatory environment, several well established US managers, with which we have had a long-standing relationship, asked BPO to act as represent-ative of their funds. Th ey were concerned by their image risk but also wanted to have a trusted partner which was not confi ned to the role of a pure administrative service provider. We realised that many managers wanted to work

with a representative that understood their business, who would be present in the long run and be part of their global marketing strategy.

Th eir vision was in line with ours as we consider repre-sentation to be a partnership and an integrated part of our clients’ marketing eff ort. We reached the conclusion that we had a value proposition to off er, obtained the FINMA authorisation and are now in the process of signing repre-sentation agreements with a limited number of funds that

match our criteria.

HFM: What is the role of the representative and how will BPO adapt to this role?LFP: Th ere are two aspects to the role of a representative.

Th e fi rst one concerns compli-ance and regulations. Pursuant to this role, the representative acts as an interface between the for-eign fund, the investors and FIN-MA. Th e representative advises the foreign fund, ensures that of-fering documents and marketing materials are in compliance with Swiss law and supervises the dis-tribution of the foreign fund in

the Swiss market. Th ere is another aspect to the relationship which isn’t

mandatory but crucial in our view. It has to do with local marketing support which requires knowledge and experi-ence of the Swiss market and its distribution channels. We have an extensive network of contacts in Switzerland al-lowing us to help the distributors with market intelligence and identifi cation of leads.

HFM: How has BPO evolved since positioning itself as a funds’ representative? LFP: Over the past months, we have committ ed a signifi -cant amount of time and resources to the representation services, including hiring fully dedicated legal personnel.

HFM: Are the contracts governing representation and distribution of funds boiler plate or created individually for each fund?

MANY MANAGERS WANTED TO WORK WITH A REPRESENTATIVE THAT

UNDERSTOOD THEIR BUSINESS, WHO WOULD BE PRESENT IN THE LONG RUN

”

HFMWEEK SPEAKS WITH LOUIS-FRÉDÉRIC DE PFYFFER OF BASTIONS PARTNERS WHO SUGGESTS HEDGE FUND MANAGERS’ EXPECTATIONS FROM THEIR SWISS REPRESENTATIVES ARE MORE THAN PLAIN COMPLIANCE AND ADMINISTRATIVE SERVICES

REPRESENTATION AND DISTRIBUTION OF FOREIGN

FUNDS IN SWITZERLAND

Louis-Frédéric de Pfyffer is a founding partner of Bastions Partners Office SA where he is responsible for alternative investments as well as foreign funds’ representation. He has a longstanding and extensive experience in the alternative industry as much in manager selection and portfolio management as in funds’ governance.

W E A LT H M A N A G E M E N T


LFP: They are mainly boiler plate but can be adapted to each particular fund. The representa-tion and distribution agreements are based on Swiss Funds and Asset Management Association templates. However, some funds and managers, in particular US-based, insist on introducing clauses to ensure compliance with mandatory laws of their home jurisdictions. We have not noticed any such clauses that would contradict Swiss regulations.

HFM: How are you different from your com-petitors?LFP: We have demonstrated a commitment to an adaptable operating model since our inception. Our edge is not only our high degree of profession-alism (which we believe is shared by our peers) but also our commitment to a partnership philosophy. We have a deep-rooted understanding of the hedge fund culture, know how to interact with managers and understand their expectations.

Moreover, we are an established entity with sta-ble income flow and several lines of business. We focus on quality of service and long term relation-ships and therefore do not aim to develop our representa-tion activity on an industrial scale.

HFM: What are the risks of the representation activity?LFP: It is important to note that the Swiss market is open to all funds provided that they are only distributed to qualified investors. There are no specific restrictions re-garding foreign funds that can be marketed in Switzerland. No FINMA prior authorisation or registration is required.

The unique condition is that the distributors be authorised in their home country.

Therefore, the risks of representing inappro-priate funds are serious. In addition to the legal risk there can be reputational risk that could be very damaging to the franchise and conse-quently to its existing clients.

HFM: How do you mitigate these risks?LFP: In order to manage such risks, we have adopted a strategy which, we believe, will be beneficial to both our clients and us. In addition to ‘classic’ due diligence and validation by the compliance officer and our board of directors, we are selective regarding the funds we are will-ing to represent. More specifically, we have opt-ed for a conservative approach and aim to rep-resent a limited number of funds. Most of the funds we are onboarding are either validated in our platform or figure in our peer group list.

It is worth noting that our experience and know-how in selecting funds is of great advan-tage in assessing the quality of funds we are will-

ing to represent. Furthermore, we have developed strong relationships with many institutional investors, prime bro-kers, law firms and other service providers which are all valuable resources in identifying high-quality managers.

HFM: A last word for our readers?LFP: As Benjamin Franklin said: “The bitterness of poor quality remains long after the sweetness of low price is for-gotten.”

WE HAVE A DEEP-ROOTED UNDERSTANDING OF THE HEDGE FUND CULTURE,

KNOW HOW TO INTERACT WITH MANAGERS AND UNDERSTAND THEIR

EXPECTATIONS

”


S W I T Z E R L A N D 2 0 1 5

In light of increasingly tough regulations, rising business costs and more extensive due diligence from investors, fund managers in Switzerland need to step up in order to compete with the big play-ers. SEQUOIA Asset Management SA can ensure investment managers reach a top institutional level

while focusing on what they do best: trading

HFMWeek (HFM): How have recent regulatory de-velopments in Europe aff ected the Swiss hedge fund industry?Henri Corboz (HC): Before the amendment of the fed-eral Collective Investment Schemes Act (CISA), which entered into force on 1 March 2013, the management of foreign funds in Switzerland and the marketing of funds to Swiss qualifi ed investors, in the absence of any public so-licitation, were out of the scope of the CISA. Following the trend of the EU Alternative Investment Fund Managers Directive (AIFMD), the Federal Council submitt ed to the Federal Assembly (Swiss Parliament) a bill of amendment of the CISA in order to regulate the foreign alternative in-vestment funds by implementing a licensing process with regards to their asset managers, provided they are located in the country, as well as imposing a local representative and paying agent to such funds since they are marketed in Switzerland.

Provided the manager may not benefi t from the de min-imis rule, which is quite similar to the one prescribed by

the AIFMD, asset managers of funds must have fi led their request for authorisation with FINMA by 28 February 2015. It is worth underlining that the asset management activity under Swiss law shall not only remain compliant with the laws applicable to the fund, but also with the law of the country of incorporation of the asset manager, i.e. Switzerland.

To some extent, a fund’s foreign law may regard this as acceptable advisory services to the fund, which are con-sidered asset managers of funds subject to authorisation under Swiss Law. Out of the scope of the de minimis rule, performing such asset management activities in Switzer-land while not being an authorised manager of collective investment schemes is a criminal off ence (article 44 of the Federal Act on the Swiss Financial Market Supervisory Authority).

HFM: When will having a representative and paying agent become compulsory?HC: Th e requirement to have both a representative and a paying agent enters into force on 1 March 2015. Th ere-aft er, it will also become a criminal off ence to market an investment fund in Switzerland lacking inter alia, a repre-sentative and paying agent in Switzerland. In this regard, newly draft ed distribution agreements to be signed by the fund and/or its management company, the representative and the distributor (the entity marketing the fund in Swit-zerland) matching the minimal requirements enacted by

CYRUS FAZEL AND HENRI CORBOZ OF SEQUOIA ASSET MANAGEMENT TALK TO HFMWEEK ABOUT THE CURRENT REGULATORY FRAMEWORK IN SWITZERLAND

SWISS FUNDS MUST CHANGE TO SURVIVE

Henri Corboz is head of legal & compliance at SEQUOIA Asset Management. Prior to SEQUOIA, Corboz was in charge of the legal department at Crédit Agricole SA. He joined Sequoia Asset Management SA in 2014. He holds an LL.M from the University of Pennsylvania Law School, a Lic. Iur. from the University of Geneva Law School and the STEP Diploma in International Trust Management.

A S S E T M A N A G E M E N T


Swiss Funds and Asset Managers Association (SFAMA) must also be in place. Under specifi c conditions, the for-eign regulated manager of the investment fund may per-form marketing activities in Switzerland based on a Swiss law compliant distribution agreement and under the su-pervision of the Swiss representative who has to make sure that local provisions are followed.

All the intermediaries in the marketing process, being the representative, the paying agent and the distributor, are regulated entities. As FINMA authorised asset man-agers of collective investment schemes, SEQUOIA Asset Management SA tends also to off er a one-stop service to funds they want to remain marketed in Switzerland by fi l-ing a request to become admitt ed as a representative and distributor.

HFM: How has the Swiss hedge fund industry reacted to FINMA?Cyrus Fazel (CF): Switzerland remains a place open to the promotion and marketing of hedge funds not incor-porated within the EU, provided they match the above requirements. With regards to the management of assets, Swiss-based asset managers with the appropriate licence may be in a position to perform the management of non-EU collective investment vehicles and AIFMD or Ucits compliant investment funds on a wide scale. Regarding marketing, we expect that numerous non-EU hedge funds are currently catching the opportunity to retain a Swiss representative to keep a point of sale on the continent.

Although from time to time regarded as an isolated is-land within the EU, we strongly believe that Swit-zerland could off er the broadest range of products not only available for marketing to investors, but also locally managed.

HFM: What is the appetite for alternatives like in Switzerland?CF: In 2008 many institutions were invested in hazardous funds that gated and or cheated Swiss investors. Th erefore, from 2009 till 2014 the al-location towards hedge funds was scarce, with the exception of few Swiss-German institutional investors who have continued to fi nd the space att ractive.

2014 showed that investors lost confi dence in traditional long-only investment, as the equity markets were at all-time highs and bond yields at their lowest. Th e solution to this dilemma was that several fi rms started to reinvest with low correlated hedge funds such as event-driven, market-neutral and other non-directional strategies.

Going forward, we have strong hopes that hedge funds will seduce investors for the following rea-sons:

• Swiss managers will have to comply with the FINMA standards (where risk management, legal & compli-ance measures, and auditing are now an obligation to carry on managing funds in Switzerland

• Foreign hedge funds will have to appoint legal rep-resentatives and distributors, which will have to do their own due diligence

• Ucits growth with retail classes; increase of Swiss

managers, especially in 2017 when the tax harmoni-sation will take place.

Essentially, Swiss investors will be subjected to greater regulated funds that have gone through due diligence, which will help them to add a layer of confi dence.

HFM: Th e sophistication of investors is a reality in all hedge fund jurisdictions. To what degree is it visible in Switzerland specifi cally? CF: Prior to 2008 most people would agree that due dili-gence was a bit light for several big institutions and the hedge fund manager could potentially bypass it. Nowa-days, an investor could like the fund but would need to tick all the boxes before chipping in. Th is means it will get harder and harder for emerging managers to comply with the extensive requirements of institutional inves-tors and more infl ows will go to the regulated and well-established funds.

HFM: What can investment managers expect from SE-QUOIA and what makes you stand out?CF: Currently we are seeking best-breed investment man-agers in the alternative and traditional space to plug on our platform. We are among the few Swiss asset manag-ers approved by FINMA with the CISA licence off ering a one-stop-shop to talented fund managers.

SEQUOIA Asset Management SA off ers fund manag-ers a full range of administrative, corporate and operation-al services which enable them to concentrate on their core investment activities.

From legal and compliance to operations, SEQUOIA’s range of services covers all the tasks required for the management of invest-ments funds within Switzerland’s new regulato-ry environment. By joining SEQUOIA you will benefi t from risk management and portfolio monitoring, top down and bott om up research, offi ce space, marketing and fund representation and distribution.

We are looking to fi nd the best pilot and make sure that he or she has the best plane and operational staff to experience the best possible fl ight.

HFM: SEQUOIA, like all Swiss fund manag-ers, must evolve to keep up with large insti-tutional players. What are your plans to de-velop your off ering? CF: First, we have been investing in alterna-tive funds for nearly two decades and have been updating our due diligence process progressively and with upmost care. We are fully aware of all the box ticking proce-

dures and will make sure that we are fully compliant at every step.

In the meantime, while several Swiss asset managers were waiting for clarifi cation from FINMA for the CISA licence, we were among the few who took every step to apply for and get the CISA licence.

Fundamentally, SEQUOIA Group has been innovative and will remain so in order to be a competitor in the race to the top.

REGARDING MARKETING, WE EXPECT THAT NUMEROUS

NON-EU HEDGE FUNDS ARE CURRENTLY CATCHING THE OPPORTUNITY TO RETAIN A SWISS REPRESENTATIVE TO KEEP A POINT OF SALE ON

THE CONTINENT

”

Cyrus Fazel, head of marketing,has been working in the finance industry for eight years. He started as portfolio advisor at Julius Baer conducting analysis on all asset classes for UHNW clients. He then switched to the asset management industry where he worked as a senior hedge fund adviser at Aramis Capital SA.

I N N O V AT I O N


S W I T Z E R L A N D 2 0 1 5

HFMWeek (HFM): Th ere are major changes to Swiss hedge fund regulations coming in March. How will they aff ect managers based there? Michael Appenzeller (MA): Th ere are two major changes. Swiss-based asset managers have until 1 March to obtain a FINMA licence and there has been a major eff ort across the industry over the last month, including Etops with our As-setbox product, which we run in partnership with Deloitt e, towards this. We have succeeded in easing the pain of change by allowing even small managers to become effi ciently regu-lated. Secondly, access to the Swiss market from the outside is also becoming slightly more regulated. You will need a Swiss representative and paying agent if you want to (con-tinue to) interact with qualifi ed investors. Th is is the issue which our sister fi rm, Fundbase, focuses on by launching a hedge fund marketplace that combines Swiss representation with compliant exposure to qualifi ed alternative investors.

HFM: How do Etops and Fundbase work together?MA: Th e respective services of these independent sister companies are perfectly complementary. Etops through the Assetbox product helps managers sett ing up and running their management company get licensed and obtain things like regulatory risk management and compliance at lowest possible costs, while Fundbase allows you to expose your fund to thousands of qualifi ed investors in a compliant way. Fundbase for this purpose also off ers the Swiss representa-tion services I mentioned. Fundbase is the fi rst regulated hedge fund platform globally and as such the only one in Switzerland. We received the FINMA licence last year.

HFM: How do Etops’ and Fundbase’s off erings help alternative investment funds?MA: Etops has the exact product to answer the needs of managers of all sizes in dealing with these changes. Assetbox is a very modular solution, which we off er in cooperation with Deloitt e as mentioned. It provides managers with eve-rything they need to become regulated and run their man-ager compliant on an ongoing basis. Or in short: we take care of everything but the investment management. Th is is the core competence of our clients while the Assetbox takes care of all the rest. Assetbox allows our clients to outsource high-cost procedures such as compliance and risk manage-ment and helps a fund manager to become FINMA regulat-ed in an effi cient way. When a client, either inside or outside of Switzerland, approaches us with the aim of becoming regulated, we help them create and implement a regulatory strategy and mitigate the need to build all resources for the FINMA requirements on their own.

HFM: How does Fundbase.com connect funds and investors?MA: Based on peer analysis and a state-of-the-art algo-rithm, we connect managers and investors that are likely to match. Th e process compares the fund and its existing followers on the platform to fi nd similar investors and then proposes to them to look at the fund managers space within Fundbase. Investors then must request access to the funds information in order to see more. When you add the service of Swiss representation to this, we are able to off er a very appealing package to potential funds wanting to get access to a very att ractive and fast growing invest-ment community.

HFM: What size fund managers do you most com-monly deal with? MA: For Etops/Assetbox the average size is about $250m, but we are completely modular and have clients ranging from less than $100m up to several billion dollars in assets under management. On Fundbase the mix of funds is even broader. We have the blue chip hedge funds on there that the buy-side wants to see but we also have small emerging and niche funds. It’s essentially a fast-growing representa-tion of the alternative funds universe.

HFM: How will these new regulations change the in-dustry landscape in the coming year?MA: In Switzerland if you are under $100m and you are unregulated that’s fi ne, but, whether we like it or not, you will soon fi nd you are a shrinking minority which will in-creasingly stand out as ‘not regulated’; that’s the fi rst issue. For small managers, accelerating innovation and speciali-sation in the way you do business will increasingly be the key to success, which is why we launched Fundbase. We need more effi cient ways for investors to discover relevant funds of all sizes because as we all know, the best per-forming managers on this planet are small and medium-sized, but today everybody seems to invest only in big brand names. Small managers will struggle with the new regulation but with enough innovation with their business model and with new technology-driven initiatives such as Fundbase, they have a chance to thrive.

Ultimately, all investors need returns. But by adding regulation you are not improving returns but rather add-ing costs to the equation. On the other hand, this new strain on the industry will require innovation and result in more effi cient entrepreneurial strategies, which will both become key in the future, and I believe that will be positive in the long run.

MICHAEL APPENZELLER, THE CO-FOUNDER OF ETOPS AND FUNDBASE.COM, EXPLAINS THE IMPENDING SWISS REGULATORY CHANGES AND HOW HIS OFFERINGS CAN EASE THE TRANSITION.

A DOUBLE-EDGED REGULATORY SWORD

Michael Appenzeller is one of the founders and the visionary mind behind Fundbase with access to a huge industry network. He has extensive experience in the financial industry; he is a former COO/CFO and risk manager of alternative and long-only asset managers as well as a strategy consultant and project manager for global asset management and capital market projects.

© UBS 2015. All rights reserved.

It’s not our leading-edge technology platforms that will give you the edge.

(Although obviously they’ll help.)

(Although that too is pretty important.)

No. It’s none of these things.

It’s one thing.

Our commitment to relationships.

At UBS, we listen.

And we listen hard.

You may manage traditional or alternative investments.

No one will give you a more competitive edge.

Enough of our words. We want to hear yours.

E-mail us at [email protected] or go to www.ubs.com/fundservices

Does your fund services provider give you the

edge you deserve?competitive

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