Switzerland targets investors with new vehicle to make investment schemes easier and quicker to set up, say Jurgen Borgt, Managing Director, Switzerland, and Barbara Martin, Commercial Director of Funds, Luxembourg
Investors and asset managers in Switzerland will soon have access to a new investment structure that combines the country’s reputation as a world-leading financial services hub with quick, cost-efficient set-up.
Available by 2023, the Limited Qualified Investor Fund (L-QIF) will offer qualified investors (as defined by CISA) a more flexible approach already on offer in several European fund domiciles (notably Luxembourg, Ireland and Malta), alongside the quality and security of Swiss regulatory supervision.
The Swiss asset management and financial services sector has a good reputation but has not kept pace with alternative investment funds that have emerged in the EU in the past five years.
Luxembourg pioneered the trend for innovative investment vehicles in 2016 with its Reserved Alternative Investment Fund (RAIF), which doesn’t require approval from the financial regulator. This inspired similar products across Europe – including now the Swiss L-QIF.
The RAIF allows private equity (PE) and venture capital fund initiators to set up Luxembourg-domiciled funds without pre-approval of the supervisory authority, if they are managed by an authorised alternative investment fund manager. This significantly shortens the time to market for launches.
RAIFs now represent more than half of all Luxembourg PE funds. As of June 2020, there were 1,062 RAIFs registered in the country, a 52% increase on the previous year, according to the Association of the Luxembourg Fund Industry.
Similarly, in 2016 Malta introduced the Notified Alternative Investment Fund (NAIF), which can be launched in just ten days without pre-authorisation by the local regulator.
Other EU countries such as Ireland and France have launched their own flexible investment vehicles. While fund types may differ, they have become very popular in the industry because of their fast track, cost-efficient set up.
To boost Switzerland’s attraction as a domicile for alternative investment funds, the Federal Council has supported the L-QIF, which was adopted unanimously by the Swiss Council of States in June 2021.
The L-QIF will be exempt from licensing, approval and supervision by the country’s financial market supervisor, FINMA, even though current collective investment scheme law demands that it must authorise or approve all Swiss funds. An L-QIF asset manager must be authorised by FINMA if it is Swiss or subject to state supervision. This makes it, like the RAIF, a “lightly” regulated fund structure. Investment guidelines for L-QIFs have also been relaxed compared with other Swiss investment products. As a result, investors can broaden beyond traditional asset classes such as securities and potentially consider infrastructure projects, real estate, art as well as wine and vintage cars.
There are expectations that Swiss-based investors will consider repatriating offshore funds to Switzerland or launching Swiss funds instead of resorting to Luxembourg RAIFs.
The comparative lack of regulatory oversight for L-QIFs will be off-set by a number of restrictions to protect investors.
Only professional investors or those who receive professional advice – notably financial intermediaries, insurance companies, entities with professional treasury operations, central banks, pension schemes and investment entities for high-net worth individuals – will have access to them.
L-QIFs must be exclusively managed by FINMA-regulated institutions. Because their management company guarantees compliance with the Swiss Anti- Money Laundering Act, they won’t be subject to the act.
Choosing an expert partner to help you invest in a Swiss L-QIF
Intertrust Group has been providing fund administration services for RAIFs in Luxembourg since their inception. We can adapt our expertise in alternative funds to the new structure.
Unlike the Luxembourg RAIF, the L-QIF won’t be part of the EU Marketing- passport scheme and is expected to be an exclusively Swiss product. Our long-established global expertise will enable us to be up and running in Switzerland much faster than other providers.
Swiss investors will no longer need to set up alternative funds in jurisdictions that may not offer the same protection as Switzerland. Well-prepared qualified investors will be able to take early advantage of this new investment vehicle.