Over the past decades, Switzerland has earned a reputation as a globally relevant financial centre for the fund and asset management industry. Nevertheless, due to the Swiss withholding tax, restricted offering possibilities on an international level and cost-efficiency reasons, Switzerland has struggled to establish itself as a location where collective investment schemes are virtually produced. Professional investors regularly prefer foreign fund alternatives over Swiss collective investment schemes, particularly when time to market is a decisive factor. Against this background, the introduction of the Limited Qualified Investor Fund (L-QIF) shall strengthen Switzerland’s fund product competitiveness and broaden the amount of innovative collective investment schemes on offer.
Attempts to increase the attractivity of Switzerland’s fund business have been made in the past. The revision of the Collective Investment Schemes Act (CISA) in 2006 introduced the Limited Partnership for Collective Investment and the Investment Company with Fixed Capital. These collective investment schemes were intended to provide appropriate structures for private equity and venture capital investments. The expectations could, however, not be met.
On June 26, 2019, the Federal Council opened the consultation process for an amendment to the CISA, which lasted until October 17, 2019. The main topic of the debate was the introduction of the L-QIF, a flexible Swiss collective investment scheme, which will not require product approval or regulatory authorisation nor be subject to ongoing supervision by the Swiss Financial Market Supervisory Authority (FINMA). It can, therefore, be launched faster and at reduced costs. The product will only be available to qualified investors, who wish to invest in a variety of asset classes. In order to grant a certain level of quality and security, the asset manager or fund management company of the L-QIF must be a FINMA-supervised financial institution. Both open-ended and closed-ended collective investment schemes pursuant to the CISA may be launched as L-QIF. Thus, it must be set up in one of the existing legal forms of the CISA.
The consultation draft met with broad approval in the Swiss parliament. It is expected that the Council of States will discuss the draft bill in summer 2021, followed by the National Council in fall 2021. The first L-QIF could be launched in 2022.
The L-QIF project is a good example of an innovative response to the high time and cost pressure in the approval process. The deregulation will enable Switzerland to strengthen its attractiveness as a domicile for fund production, which could interest a large number of Swiss family offices. Thanks to its flexibility, qualified investors with strong Swiss ties will no longer be forced to opt for foreign funds. While being liberally designed, the indirect regulation of the L-QIF takes due account of qualified investors’ need for protection. Furthermore, the L-QIF can be considered a growth catalyst, particularly for sustainability and fintech fund providers. Nevertheless, the limited possibilities for its use abroad and the Swiss withholding tax are disadvantages in a competitive international marketplace.
Eric Stupp and Stephanie Walter are partner and senior associate respectively at Bär & Karrer AG
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