The threatened flood of asset managers to Switzerland from London was more of a trickle, finds Fiona Rintoul, who looks at the Swiss industry as it vies to attract more fund management business.
Any notion that Switzerland’s attraction as an asset management centre is largely to do with its tax regime – or regimes, as taxation varies from canton to canton – is quickly pooh-poohed by those on the ground.
“Taxes play a role,” says Lionel Aeschlimann, managing partner and head of asset management at Mirabaud, “but contrary to a frequent misunderstanding, Switzerland is not a tax haven. Swiss taxes are high.”
The country’s much maligned banking secrecy is also deemed irrelevant by industry members.
Dirk Wieringa, head of alternative investment advisory in Switzerland at Credit Suisse, says secrecy was always a private banking, not an asset management, matter.
“We know we made a few mistakes but we’re doing everything to clear our history,” says Markus Fuchs, managing director at the Swiss Funds & Asset Management Association (SFAMA). “If you want to hide money these days, it’s much better to do it somewhere else.”
The flexible regulatory regime, which, a couple of years ago, was being billed as a reason for hedge fund managers to flee London in favour of Swiss centres such as Pfäffikon, has also proved a damp squib. Some managers did move, but it was more of a trickle than a flood. In March, Switzerland implemented equivalent legislation of the Alternative Investment Fund Managers Directive (AIFMD), and the global regulatory trend is towards convergence.
“Switzerland passed a law to adapt to the AIFMD swiftly,” says Tristan Brenner, chief operations officer at GAM Investment Management. “There are differences in the way the directive has been implemented in different jurisdictions but without any clear advantage or disadvantage, and the differences will be ironed out over time.”
This all begs the question: why choose to base yourself in Switzerland when it isn’t even an EU member state?
One immediate reason is that not being an EU member only affects interactions with other EU member states. “Switzerland has an advantage outside the EU,” says Fuchs. “In Latin America and the Middle East, you don’t need a passport. Switzerland can be more flexible. In the UK or Germany, managers need to fulfil AFIMD 100%.”
And while it’s true that Swiss funds cannot be marketed directly into EU member states, this doesn’t affect qualified investor funds. The solution to the problem for Swiss funds equivalent to Ucits – Luxembourg mirror funds – is also a clear and well-trodden path.
That leaves a fairly level playing field, but the Swiss financial services industry believes the country offers many advantages over other European and global jurisdictions and is keen both to highlight them and augment them. To this end it has established the Asset Management Switzerland Initiative, which is run jointly by SFAMA, the Swiss Banking Association and the Association of Swiss Insurers with a steering committee that includes chief executives from leading Swiss asset managers.
The initiative’s remit is to establish common shared standards for all Swiss asset managers, to lobby government and regulators for an asset management friendly environment and to promote Switzerland as an asset management centre. The idea is to encourage global asset managers to locate more of their assets in Switzerland. And while a lot of the talk about the country over the past few years has been about hedge fund managers moving there, the local asset management community is just as keen to encourage traditional asset managers.
“The alternative investment circle is active in making Switzerland more attractive for asset managers in general, and for hedge funds,” says Wieringa. “Switzerland is known to be very good at implementing international standards – the so-called Swiss finish – which makes things more stringent. We want to make it more attractive and maybe less restrictive.”
According to those on the ground, the global asset managers are turning up for the Swiss party. “Swiss asset managers have important operations in London, but it’s happening the other way round too,” says Aeschlimann. “We see important British and US asset managers bringing additional teams to Switzerland.”
Some of the advantages are obvious. Everyone knows that Switzerland lies at the centre of Europe geographically; that it has a strong history in international private banking; and that it can offer high standards of service, if not always at the very cheapest price. These factors, the local industry believes, create a conducive mindset.
“Switzerland has always had to open up to the world because the Swiss client base is very small,” says Aeschlimann. “Swiss asset managers have a competitive advantage because of their history. Another factor that is crucial for asset managers is quality of service in the broad sense – the ability to listen to clients, to propose something that fits their needs.”
Other of the country’s advantages are perhaps less obvious and best described by incomers. One global company that heard the clarion from the land of the cuckoo clock and responded is Schroders Investment Management.
Stephen Mills, chief executive, established the company’s Swiss asset management business in the late 1990s. Initially, it mainly offered local products to local clients but the business now has an international dimension, too. Its Swiss equity funds have always been on the company’s Luxembourg platform, and its balanced business for the continent of Europe is run from Switzerland.
Mills, who is a member of the Asset Management Switzerland Initiative steering committee, sees Switzerland as being particularly strong in certain niches. An example is insurance-linked securities (ILS), a sector Schroders entered earlier this year with the purchase of a 30% stake in Secquaero Advisors Limited (see Executive interview, p18). “The reason this makes sense in Switzerland is because there are so many re-insurers here,” he says.
“There are only a few places in the world where you have this concentration of re-insurers.”
Swiss re-insurers are familiar territory for the British firm. Schroders acquired Swiss Re’s fund business in 2008 and put all its Swiss asset management business into that shell.
Alternative investments are another sector where Switzerland is considered to play a strong hand. Again, it’s important for there to be a community.
“When you set up a hedge fund, you look at whether you can get good seed capital and set up relationships,” says Brenner. “In all three parts of the country [German-speaking, French-speaking and Italian-speaking], there is a fairly strong private banking industry.”
The word community can encapsulate many things. Switzerland is unusual in having three asset management centres within its borders – Geneva, Zurich and Lugano – as well as satellite centres such as Zug and Pfäffikon. The different languages and cultures of these centres often play an important role. Before being taken over by GAM, Tristan Brenner’s company started in Lugano because it wanted to get close to the Italian market, but the regulatory regime in Italy itself was too restrictive for a single-manager hedge fund. Similarly, closeness to French or German clientele propels managers to Geneva and Zurich respectively.
“The different centres are helpful,” says Aeschlimann. “They make things much richer. All three centres have slightly different cultures, visions and values. They’re complementary.”
That’s the positive side, but the fact that each canton pursues its own tax policies can have negative consequences.
“It’s not necessarily a positive when you have cantons bordering on each other, when you can walk from one to the other,” says Brenner.
However, the most commonly cited advantage of Switzerland as a base for asset managers is one that crosses cantons and is partly a sum of its other advantages and partly about softer advantages, such as mountains and clean air, tasty chocolate and cheese: quality of life.
“We have stability,” says Wieringa. “It’s a safe country and last but not least it’s a beautiful country. It’s not just the work but the work-life balance that means we are able to attract people to work out of Switzerland.”
Part of that stability and safety is about the much-discussed tax regime. Taxes in Switzerland may not be as low as people imagine, but they are stable and that’s important. “We have no problem paying taxes, but they have to be stable and visible,” says Aeschlimann.
Switzerland offers that.
“You know how you’re taxed in each Swiss canton,” says Fuchs. “The tax regime will not change rapidly. Geneva will not increase taxes from 40% to 60%.”In other words, they’ll be no Monsieur Hollande popping up and proposing a 90% tax on the wealthy. This is really about a supportive state of mind in the political and regulatory class.
Which is not to suggest that Switzerland is politically dull and all the battles have been won.
Mills cites the example of a forthcoming referendum that is the brainchild of the young socialists. Its aim is to curb the highest salary within an organisation at 12 times the lowest. “Glencore would struggle with that. That would send a terrible signal.”
©2013 funds europe