Daniel Haeberli, Eduard De Zordi, Stefan Oesterhelt, Ansgar Schott and Anh Huynh, Homburger AG

Transcription

1 Investment Funds 2007/08 Switzerland Switzerland Daniel Haeberli, Eduard De Zordi, Stefan Oesterhelt, Ansgar Schott and Anh Huynh, Homburger AG Retail funds 1. Please give a brief overview of the retail funds market in your jurisdiction. (How developed is the market? Has it been active in the past year?) not as active as the market for open-end retail funds (see above, ). Domestic closed-end retail funds are organised in the form of a share company and may sometimes be listed on the SWX Stock Exchange (SWX) and traded on the SWX s market segment for investment companies. If listed, such investment companies do not fall within the scope of the Collective Investment Schemes Act. Switzerland is one of the primary markets for asset management. As at August 2007, assets of about CHF5,300 billion (about US$4,573 billion) were deposited with Swiss banks by foreign and domestic customers. Investments in investment funds or collective investment schemes (excluding pensions funds and other retirement schemes) accounted for around CHF831 billion (about US$717 billion). While Switzerland ranks fifth for distributions of investment funds or collective investment schemes in Europe, it is a niche market as a production location. About 4,800 investment funds are authorised for public distribution in Switzerland, but only about 1,030 investment funds are domiciled in Switzerland (Monthly Statistical Bulletin August 2007 of the Swiss National Bank). The remaining 3,770 foreign domiciled investment funds represent about half of the assets invested in collective investment schemes placed in Switzerland. A large number of these have a Swiss promoter and the vast majority of foreign investment funds authorised for public distribution in Switzerland are set up as undertakings for collective investments in transferable securities (UCITS) under the laws of Luxembourg or Ireland. To encourage the use of Switzerland as a location for collective investment schemes, the Swiss investment fund regulations have been revised and the Federal Act on Investment Funds (Investment Fund Act) of 18 March 1994 has been replaced by the Swiss Federal Act on Collective Investment Schemes (Collective Investment Schemes Act) of 23 June 2006, which entered into force on 1 January While under the Investment Fund Act, domestic open-end funds could only be established on a contractual basis (Investment Fund) (see Question 8, Open-end retail funds: Investment Fund), the Collective Investment Schemes Act introduced the domestic open-end vehicle on a corporate basis in the form of an investment company with variable share capital (société d investissement à capital variable) (SICAV), a structure similar to the Luxembourg SICAV (see Question 8, Open-end retail funds: SICAV). There are no publicly available statistics for the Swiss market for closed-end retail funds. However, it appears that the market is The newly introduced limited partnership for collective investment (LP) is a closed-end vehicle but only available for qualified investors and therefore not open to retail investors (see Question 15). 2. What are the key statutes, regulations and rules that govern retail funds in your jurisdiction? What regulatory bodies are involved in regulating retail funds? The Collective Investment Schemes Act regulates both open- and closed-end retail funds as well as domestic and foreign funds and its aim is to protect investors and ensure the transparency and proper functioning of the market for collective investment schemes and investment funds (see Question 1). The supervisory authority for collective investment schemes is the Swiss Federal Banking Commission (FBC). It is responsible for authorising and supervising investment schemes in Switzerland that are regulated by Collective Investment Schemes Act. The Collective Investment Schemes Act is designed as a framework law and sets out the fundamental principles. It is supplemented by the Ordinance of the Swiss Federal Council on Collective Investment Schemes (CISO) and the Ordinance of the Swiss Federal Banking Commission on Collective Investment Schemes (CISO-FBC) which provide more detailed regulations. The definition of collective investments schemes require that both the: Assets are raised from investors for the purpose of collective investment which are managed on the investor s behalf. Investment requirements of the investors are met on an equal basis. While domestic collective investment schemes under the Collective Investment Schemes Act are always subject to prior authorisation by the FBC, foreign collective investment schemes are only subject to the authorisation requirements if they are publicly offered and distributed in or from Switzerland (see Question 5, Foreign funds). CROSS-BORDER HANDBOOKS 135

2 Switzerland Investment Funds 2007/08 3. Do the retail funds themselves have to be authorised or licensed? If so, what are the main steps involved? Domestic retail funds Any party responsible for managing a domestic collective investment scheme or safekeeping the assets held in it must obtain authorisation from the FBC. This includes: Fund management companies. SICAVs. LPs. Closed-end investment company with fixed share capital (société d investissement à capital fix) (SICAF) (see below). Custodian banks. Asset managers and distributors of collective investment schemes. A SICAF is subject to authorisation and supervision by the FBC if it is both (Collective Investment Schemes Act): Open to the general public (for example, retail investors). Not listed on the SWX. It is likely that in the future Swiss investment companies will only be publicly offered if listed on the SWX to avoid being subject to the authorisation and supervision by the FBC. A licensed representative in Switzerland has been appointed. A licensed Swiss bank as paying agent in Switzerland has been appointed. The relevant documents of the collective investment scheme have been approved by the FBC. The representative represents the foreign funds to the investors and the FBC and must report, publish and inform, and comply with any codes of conduct imposed by the FBC. The FBC grants authorisation to the scheme if the following requirements are met: The collective investment scheme is subject to adequate prudential supervision (that is, supervision aimed at protecting investors) in its home country. The organisation, investor rights and investment policy of the collective investment scheme are equivalent to the provisions of the Collective Investment Schemes Act. The name of the collective investment scheme does not provide grounds for confusion or deception. The FBC consider that foreign collective investment schemes subject to Directive 2001/108/EC with regard to investments of UCITS and Directive 2001/107/EC with a view to regulating management companies and simplified prospectuses (UCITS Directives) comply with the first two requirements above. 4. Who can market retail funds? Authorisation is granted if: The persons responsible for management and the business operations: have a good reputation; Any person planning to offer or distribute units of domestic or foreign investment funds to the public in or from Switzerland must receive prior authorisation from the FBC. In contrast, a person marketing on the basis of a private placement is not subject to authorisation as a distributor. guarantee a proper manager; possess the requisite specialist qualifications. The significant (direct or indirect) equity holders (that is, those holding 10% or more of the equity) have a good reputation and do not exert their influence to the detriment of prudent and sound business practice. Compliance is assured by internal regulations and an appropriate organisational structure. Sufficient financial guarantees are available. The additional authorisation conditions of the Collective Investment Schemes Act are met. Foreign retail funds Foreign collective investment schemes can only be publicly offered and distributed in or from Switzerland, if the following requirements are met: The authorisation is granted by the FBC to a natural or legal person that can provide evidence of: Appropriate professional indemnity insurance. Adequate procedural details in relation to distribution. A written distribution agreement with the fund management company, SICAV or SICAF, or the representative of a foreign collective investment scheme (see Question 6) under which they are prohibited from receiving payments for purchasing fund units. 5. To whom can retail funds be marketed? Domestic retail funds. Domestic open-end retail funds can be marketed to any type of investor, if the collective investment schemes are authorised by the FBC. 136 CROSS-BORDER HANDBOOKS

3 Investment Funds 2007/08 Switzerland. Domestic closed-end funds in the form of a SICAF can be marketed to any type of investor, if it is authorised by the FBC. However, a SICAF is only subject to authorisation under the Collective Investment Schemes Act if, among other things, its shareholders are non-qualified investors. Therefore, shares of an unauthorised SICAF can only be offered to qualified investors. Foreign retail funds Foreign open- as well as closed-end retail funds can be marketed to any type of investor, if they are authorised by the FBC. Foreign funds are only subject to authorisation by the FBC if publicly offered in or from Switzerland. An offering is not deemed to be public if it is directed exclusively to qualified investors, which include: Regulated financial intermediaries such as banks, securities traders and fund management companies. Regulated insurance institutions. Public entities and retirement benefits institutions with professional treasury functions. Companies with professional treasury operations. A person that confirms in writing to a regulated financial intermediary or an independent asset manager that he directly or indirectly holds financial investments of at least CHF2 million (about US$1.7 million) (high net-worth individual). Internal regulations and appropriate organisational structures ensure compliance with legal duties. Sufficient financial guarantees are available. Asset managers of foreign funds can apply for authorisation from the FBC if all of the following requirements are met: Their place of residence or registered office is in Switzerland. They are subject to supervision under foreign legislation. The foreign fund that they manage is subject to supervision of an equivalent standard to that required in Switzerland. 7. Who holds the portfolio of assets? What regulations are in place for its protection? The assets of a domestic open-end fund must be deposited with a custodian bank, which must be a bank holding a licence under the Swiss Federal Act on Banks and Savings Institutions (Federal Banking Act) of 8 November In addition, the custodian bank must be authorised by the FBC to act as custodian for open-end funds under the Collective Investment Schemes Act. The custodian bank is responsible for: A person that has concluded a written discretionary management agreement with a regulated financial intermediary, if the latter is governed by the Swiss Federal Act on Money Laundering of 10 October 1997 or similar rules recognised by the FBC. 6. What are the key requirements that apply to managers/operators of retail funds? Domestic retail funds The managers of a domestic fund (that is, an Investment Fund s fund management company or a SICAV) must obtain prior authorisation from the FBC, whether or not the funds are publicly offered or only distributed on a private placement basis. The FBC grants authorisation if all of the following conditions are met: The persons responsible for management and the business operations: have a good reputation; guarantee proper management; and possess the requisite specialist qualifications. The significant equity holders have a good reputation and do not use their influence to the detriment of prudent business practice. Safekeeping the fund s assets. Issuing and redeeming units. Payment transfers on the fund s behalf. Ensuring and verifying that the fund management company or the SICAV complies with the relevant fund regulations. If the custodian bank becomes bankrupt, the assets held by them in custody are not included in the custodian bank s total liquidation assets but are separated from them in the depositor s (that is, the fund management company s or SICAV s) favour, subject to any claims by the Custodian Bank against the depositor. As the fund management company holds the fund s assets as the investor s fiduciary, a similar treatment applies in the event of the fund management company s bankruptcy. Domestic closed-end funds do not have to deposit the fund s assets with a custodian bank or any other regulated institution. Therefore, generally the assets are not subject to a special treatment in the event of the fund s bankruptcy. However, if the assets are held with a bank within the meaning of the Federal Banking Act, the assets deposited with that bank are, in the case of the bank s bankruptcy, subject to same rules as for open-end funds (see above, ). CROSS-BORDER HANDBOOKS 137

4 Switzerland Investment Funds 2007/08 8. What are the main legal vehicles used to set up a retail fund and what are the key advantages and disadvantages of using these structures? What are the participants interests in the fund called (for example, share or unit)? The main domestic open-end retail funds vehicles are the (see Question 1, ): The SICAV can issue new investor shares at the NAV at any time and must, if requested by an investor, redeem the issued shares at the NAV. While in principle the two share categories have the same rights and obligations and, in particular, each share carries one vote, only holders of the company shares (that is, the promoters) must maintain the capital adequacy requirement (that is, the ratio of the SICAV s capital to its total assets and investments) and can decide on the SICAV s dissolution. Investment Fund. SICAV. Investment Fund. An Investment Fund is based on a collective investment agreement (fund contract) between the: Investor. Fund management company. Custodian bank. The fund contract must be submitted with and approved by the FBC and include, among other submissions, the: Investment policy. Calculation of the net asset value (NAV) (that is, the value of one unit of the fund at the close of the trading day). Type, amount and calculation of all fees, and the issue and redemption commission. The fund management company must: Be incorporated and have its principal place of business in Switzerland. Provide an appropriate organisational structure. Comply with certain capital adequacy requirements. The articles of association can authorise the board of directors (board) to transfer the management to an authorised fund management company. Therefore, it can be set up as a self-managed or third party-managed vehicle. Advantages and disadvantages. The SICAV has been promoted as being an attractive vehicle for independent asset managers for private/white labelling projects (that is, customised funds set up for a specific promoter such as an independent asset manager) as it allows unregulated independent asset managers to exercise a direct influence on the collective investment scheme by sitting on the board. All administrative tasks can be delegated to service providers such as fund management companies, which are not liable for any actions of the SICAV s board (that is, the promoters). The Investment Fund is likely to remain the preferred structure for Swiss retail funds not least because an Investment Fund s management company can also provide asset management and investment advisory services to third parties as well as technical administration services to other collective investment schemes, while the SICAV can only manage its own assets and is prohibited from rendering any other services. Domestic closed-end retail funds must be established as SICAFs (see Question 1, ). The participation interests in SICAFs are shares. While the fund management company can delegate investment decisions to a (domestic or foreign domiciled) third party that is subject to adequate supervision by a recognised supervisory authority, it remains liable for the actions of its agents. The custodian bank must be a Swiss bank (or a Swiss branch of a foreign bank) authorised and supervised by the FBC (see Question 7, ). The participation interests in an Investment Fund are units. SICAV. A SICAV is incorporated as a company whose: Capital and number of shares are not specified in advance. Capital is divided into: 9. Describe the investment and borrowing restrictions to which retail funds are subject. The rules regarding the investment and borrowing restrictions are the same for Investment Funds and SICAVs, and depend primarily on the type of fund in question. Investment Funds and SICAVs can exist as: Securities funds. Real estate funds. Other funds for traditional investments. company shares having no nominal value; Other funds for alternative investments. investor shares having no nominal value. Sole object is collective capital investment. For each type of fund there are different regulatory rules regarding investments and borrowing set out in the CISO and the CISO- 138 CROSS-BORDER HANDBOOKS

5 Investment Funds 2007/08 Switzerland FBC, providing, among other things, for specific diversification requirements. Securities funds. Securities funds invest mainly in transferable securities issued on a large scale, which are traded on a stock exchange or another regulated market open to the public. Securities funds can also: Conduct securities lending. Enter into repurchase agreements. Borrow funds. Provide collateral. Invest in derivatives. Real estate funds. Real estate funds invest mainly in: Real estate. Real estate companies. Units in real estate funds. Foreign real estate securities. Real estate funds can also conduct derivative transactions, if the transactions comply with the fund s investment policy. Other funds for traditional investments. These are funds which invest in: be pledged or ceded. Funds can only commit to an overall exposure of up to 600% of the fund s net assets. Engaging in short-selling is prohibited. The FBC can grant exceptions from the regulations relating to the: Permitted investments. Investment techniques. Restrictions. Risk diversification. SICAFs. SICAFs can invest in: Securities. Precious metals. Real estate. Commodities. Derivatives. Units of other collective investment schemes. Securities. Units in collective investment schemes. Money market instruments. Deposits up to 12 months. Precious metals. Various derivative instruments. Structured products. In addition, these funds have a risk profile typical for traditional investments. Other assets and rights which are allowed as investments for other funds for traditional investments and for other funds for alternative investments (see above, Open-end retail funds, Other funds for traditional investments and Other funds for alternative investments). Generally, SICAFs can determine their own investment and borrowing restrictions in their articles of association and investment regulations. If the risk profile of a SICAF is typical of traditional investments, the investment and borrowing restrictions regarding other funds for traditional investments apply (see above, Openend retail funds, Other funds for traditional investment). If the risk profile of a SICAF is typical for alternative investments, the investment and borrowing restrictions regarding other funds for alternative investments apply (see above,, Other funds for alternative investment). Other funds for alternative investments. These are funds which invest in the same things as other funds for traditional investments (see above, Other funds for traditional investments) and have a risk profile typical for alternative investments. These investments are subject to less restrictive regulation in the CISO and the CISO-FBC than the other funds. Only the following restrictions apply with respect to other funds for alternative investments : Loans cannot be raised for amounts exceeding 50% of the fund s net assets. Collateral of more than 100% of the fund s assets cannot 10. Can the manager/operator place any restrictions on the issue and redemption of interests in retail funds? Generally, investors can require redemption of units in Investment Funds and shares in SICAVs at any time. As an exception, the Investment Fund s or SICAV s regulations can determine that redemptions can only be required on specific dates, if all of the following requirements are met: The investments are difficult to value or are of limited marketability. CROSS-BORDER HANDBOOKS 139

6 Switzerland Investment Funds 2007/08 Redemptions can be required at least four times per year. The restricted right of redemption is explicitly disclosed in the regulations, the prospectus and the simplified prospectus. In addition, the FBC can, on reasoned request, authorise further restrictions to the right of redemption, specifically where the Investment Fund or SICAV invest in investments which are not: Listed or traded on a regulated market open to the public. Mortgages. Private equity investments. However, the right to redeem cannot be suspended for more than five years and this restriction on redemption must also be explicitly disclosed in the regulations, the prospectus and the simplified prospectus. Redemptions can further be restricted in the following exceptional circumstances, if the restrictions are set out in the Investment Fund s or SICAV s regulations: Where a market that serves as the basis for the valuation of a significant proportion of the fund s assets is closed, or if trading on the market is restricted or suspended. In the event of political, economic, military, monetary or other emergencies. form of fund contract prepared by the Swiss Funds Association, no such transfer restrictions are provided for. SICAVs. The shares in retail SICAVs must be freely transferable. The transferability of shares in SICAFs is regulated by the Swiss Code of Obligations for Swiss corporations. The SICAF s articles of association can provide certain transfer restrictions. If there are no restrictions, the shares are in principle freely transferable. The transfer must be recognised by the board, which can refuse the transfer only if either: The SICAF offers to the seller of the shares to take over the shares for: its own account; the account of other shareholders; or third parties at the real value at the time of the request. The acquirer does not expressly declare that it has acquired the shares in its own name and for its own account. 12. Describe the periodic reporting requirements to: Investors. If, owing to exchange controls or restrictions on other asset transfers, the collective investment scheme can no longer transact its business. In the event of large-scale withdrawals of units or shares which may significantly endanger the interests of other investors. If redemptions are deferred due to these circumstances, the Investment Fund or SICAV must inform its auditors and the FBC without delay and also communicate its decision to its investors. In addition, the FBC is generally authorised in exceptional circumstances to grant a limited deferral for the units in Investment Funds and shares in SICAVs if this is in the interest of all the investors. Regulators. Investors Investors are notified by way of publication. Publication must be made in an official language (German, French or Italian) in the Schweizerisches Handelsamtsblatt or either: In another print media specified in the prospectus. On a publicly accessible electronic platform recognised by the FBC (for example, In particular, the following information must be made available to investors: The investors cannot request the redemption of shares in the SI- CAF. 11. Describe any restrictions on the rights of participants in retail funds to transfer or assign their interests to third parties. Investment Funds. For investment funds there are no statutory restrictions on transferring interests. However, restrictions can be set out in the Investment Fund s fund contract. In the standard The simplified prospectus, the articles of association or the fund contract and any amendments to them. The annual and semi-annual reports. The NAVs of units at regular intervals. Regulator The FBC as regulator must be notified of: Any change: in the persons responsible for the management and the business operations; 140 CROSS-BORDER HANDBOOKS

7 Investment Funds 2007/08 Switzerland in significant equity holders, except for company shareholders in a SICAV; of executive persons entrusted with the performance of the custodian bank s duties; with respect to the financial guarantees, in particular if the minimum requirements are no longer met; to the relevant documents such as the prospectus, the simplified prospectus, the articles of association or the fund contract. Facts which might have a negative impact on: Resident investors For resident individual investors who hold the investment as part of their private assets the following apply: Distributions. Distributions are generally subject to income tax at individual investor level. Distributions of realised capital gains of Investment Funds and SICAVs, and income deriving from directly owned real estate are not subject to tax. Retained earnings of non-distributing funds. Non-distributed profits of non-distributing Investment Funds and SICAVs are subject to income tax. the good reputation of significant equity holders; the proper management and sound business practice by the persons in charge within the funds, and specifically any criminal proceedings against them. Foreign collective investment schemes must notify the FBC of: Any measures taken by a foreign supervisory authority against the collective investment scheme, specifically its withdrawal of approval. Any amendments to the relevant documents of the foreign collective investment schemes. The termination of representative agreements. 13. Describe the tax treatment for: Funds. Resident investors. Non-resident investors. Funds Taxation on sale. Gains realised on selling shares of funds are not subject to income tax. Selling shares of funds is, however, subject to 0.15% turnover stamp duty if a securities dealer (Effektenhändler) is involved in the transaction. Non-resident investors Withholding tax on the distribution of profits is levied in the same way as for resident investors (see above, Resident investors). A non-resident investor in an Investment Fund or SICAV can reclaim the withholding tax in full (or, alternatively, the Federal Tax Administration may not levy any withholding tax at all) if at least 80% of the fund s earnings are foreign sourced. If an Investment Fund s or SICAV s foreign source earnings are less than 80%, a non-resident investor may reclaim Swiss withholding tax depending on any applicable double taxation treaties. If more than 50% of the earnings of the fund is interest income a full refund of the withholding tax is granted under most Swiss double taxation treaties (Article 11, OECD Model Tax Convention on Income and on Capital (MTC)). If more than 50% of the earnings of the fund are dividend income, Article 10 of the MTC applies. A non-resident investor can reclaim withholding tax on the distribution of profits of a SICAF under Article 10 of the MTC in applicable double taxation treaties. Corporate income tax. Investment Funds and SICAVs are basically not subject to corporate income tax. However, income deriving from directly owned real estate is subject to corporate income tax (at a reduced rate). SICAFs are subject to corporate income tax at ordinary tax rates. Capital tax. On a cantonal level only, capital tax is due for directly owned real estate. SICAFs are subject to capital tax on a cantonal level. Withholding tax. The distribution of profits (a yearly deemed distribution of non-distributing Investment Funds and SICAVs) is subject to a 35% withholding tax. Distributions of realised capital gains of Investment Funds and SICAVs, and income derived from directly owned real estate are not subject to withholding tax. Issuance stamp tax. The issue of a SICAF s shares is subject to issuance stamp tax at a rate of 1%. 14. Please summarise any proposals for the reform of retail fund regulation in your jurisdiction. While there are currently no formal proposals for reform, there are initiatives to improve the regulatory environment, in particular in relation to the ability to passport Swiss funds into the EEA. Hedge funds 15. Please give a brief overview of the hedge funds market in your jurisdiction. (How developed is the market? Has it been active in the past year?) Switzerland is a major market for the placement of funds of hedge fund products with an estimated volume at the end of 2006 of about US$200 billion (about EUR138 billion). The vast majority of the hedge funds of funds placed in Switzerland are domiciled abroad and offered in Switzerland on a private placement basis. CROSS-BORDER HANDBOOKS 141

8 Switzerland Investment Funds 2007/08 Switzerland has to date been far less significant as a location for hedge fund managers and as a domicile for single hedge funds themselves. While virtually all single hedge funds placed in Switzerland are unauthorised foreign funds distributed in Switzerland on a private placement basis, the number of asset managers located in Switzerland acting for offshore hedge funds has increased in recent years. As at August 2007, up to approximately 100 foreign single hedge funds were privately placed in Switzerland and between 40 and 50 hedge fund asset managers were located in Switzerland managing no more than US$10 billion (EUR6.9 billion), which represents less than 1% of the total assets of hedge funds managed worldwide. The LP was introduced in the Collective Investment Schemes Act to make Switzerland more attractive as a location for hedge funds. It is a vehicle for closed-end alternative investment structures and is similar to the Anglo-Saxon limited partnership or the Luxembourg société d investissement à capital risque (SICAR). 16. What are the key statutes and regulations that govern hedge funds in your jurisdiction? What regulatory bodies are involved in regulating hedge funds? 18. Who can market hedge funds? This is in essence the same as for retail funds (see Question 4). 19. To whom can hedge funds be marketed? This is in essence the same as for retail funds (see Question 5). 20. Who holds the portfolio of assets? What regulations are in place for its protection? This is in essence the same as for retail funds (see Question 6). 21. Describe the key disclosure or filing requirements (if any) that must be done by the fund (for example, in relation to the prospectus or offering memorandum and side letters). Domestic hedge funds Domestic hedge funds are governed by the Collective Investment Schemes Act and subject to authorisation and supervision by the FBC (see Question 2). This is in essence the same as for retail funds (see Questions 3 and 12). 22. What are the key requirements that apply to managers/operators of hedge funds? Foreign hedge funds Foreign hedge funds are governed by the Collective Investment Schemes Act and are subject to authorisation by the FBC, but only if publicly offered and distributed in or from Switzerland (see Question 5). 17. How are the following areas regulated (if at all) in relation to hedge funds: Risk. Valuation and pricing. Systems and controls. Insider dealing and market abuse. Transparency. Money laundering. This is in essence the same as for retail funds (see Question 6). 23. What are the main legal vehicles used to set up a hedge fund and what are the key advantages and disadvantages of using these structures? What are the participants interests in the fund called (for example, share or unit)? Domestic hedge funds are usually established as funds of hedge funds rather than single hedge funds and take the form of Investment Funds of the category other funds for alternative investments (see Question 9, : Other funds for alternative investments). LPs offer a domestic vehicle for single hedge funds but are also available for fund of (hedge) funds or private equity investments. The LP s general partner is subject to authorisation by the FBC and the LP s company agreement is subject to approval by the FBC. The general partner may delegate the asset management function, but only to an authorised manager for collective investment schemes. There are only specific requirements for domestic funds of hedge funds structured as Investment Funds or SICAVs in the category of other funds for alternative investments (see Question 9, Openend retail funds: Other funds for alternative investments). If structured as a SICAF or LP there are no hedge fund specific regulations that apply exclusively to domestic single hedge funds. An LP conducts investments in risk capital. These investments in companies or projects can take the form of equity capital, lending or mezzanine financing. Other permitted investments are construction, real estate project and alternative investments. The FBC can allow additional forms of investment. Compared with the regulation of Investment Funds and SICAVs (see Question 9, ), the rules governing closed-end funds are less restrictive and to a large extent permit the investment and borrowing restrictions to be determined in the LP s company 142 CROSS-BORDER HANDBOOKS

9 Investment Funds 2007/08 Switzerland agreement. LPs have considerable discretion in setting these restrictions, provided their rules comply with the scope of investments permitted for LPs. 24. What are the advantages and disadvantages of using onshore and offshore structures? Onshore Onshore structures suitable for funds of hedge funds take the form of open-end funds (that is, an Investment Fund or SICAV) of the category other funds for alternative investments (see Question 23). These vehicles have the advantage that they can also be publicly offered also to retail investors in Switzerland once authorised by the FBC. However, these vehicles are not suitable for single hedge funds. 25. Describe the tax treatment for: Funds. Resident investors. Non-resident investors. The tax treatment for hedge funds is the same as for retail funds (see Question 13). 26. Can participants redeem their interest? Are there any restrictions on the right of participants to transfer their interests to third parties? The LP is suitable for single hedge funds. However, this vehicle is limited as it can only be offered to qualified investors. In addition, there are some unresolved tax (in particular with respect to the taxation of the hedge fund manager) issues, which adversely affect the popularity of the LP. Offshore The advantage of an offshore structure qualifying as a foreign collective investment scheme is that it is not subject to authorisation by the FBC if it is privately placed in Switzerland and not publicly offered. Non-authorised offshore hedge funds can be offered and sold to qualifying investors on a private placement basis (see Question 4). However, to avoid being re-characterised as a domestic (hedge) fund, the fund s management must be conducted outside Switzerland. It is possible to retain a Swiss investment advisor or even a Swiss investment manager without triggering any authorisation requirements under the Collective Investment Schemes Act. The disadvantage of an offshore structure is that it may not be able to meet the authorisation requirements under the Collective Investment Schemes Act (depending on, among other things, the domicile of the hedge fund) and may therefore not be eligible for public distribution in Switzerland. For domestic hedge funds established as an LP, the LP s company agreement determines the transferability of interests in the LP. In the standard company agreement prepared by the Swiss Funds Association, the following rules apply: The investors can transfer their interests to: other limited partners, if at least five limited partners remain; or third parties, if they are also qualified investors. The investor must first offer the interests to the other limited partners, before it can sell to third parties. The transfer of interests in the LP to a third party is subject to the approval of the general partner. 27. Please summarise any proposals for the reform of hedge fund regulation in your jurisdiction. There are currently no formal proposals for reform in Switzerland. However, certain open tax issues negatively affect the popularity of Switzerland for hedge fund managers. Accordingly, it will be one of the goals of the Swiss hedge fund industry to push for a competitive tax regime in Switzerland. CROSS-BORDER HANDBOOKS 143

10 Homburger is one of Switzerland s premier business law firms. Since its establishment in 1957, Homburger advises and represents Swiss and international corporate clients and individual entrepreneurs on key aspects of business law. We offer our clients expert legal advice, support in business negotiations, representation in court, and protection of their interests in civil and administrative proceedings. Homburger AG Weinbergstrasse CH Zürich P.O. Box 338 CH Zürich Phone Fax lawyers@ homburger.ch Homburger is organized into six practice groups, integrating the skills and experience of more than 100 lawyers and tax experts focussing on specific areas. Our practice groups are Corporate M&A, Financial Services, Competition, IP IT, Litigation Arbitration and Tax. The Homburger Financial Services Practice Group is a leading advisor on banking and financing law serving major domestic and international banks and other financial institutions. The team offers a comprehensive range of legal services in the areas of Debt capital markets (straight and equity-linked bonds, eurobonds) Equity capital markets (IPOs, capital increases) and private equity Derivatives (listed products, OTC and structured derivatives) Collective investment schemes Syndicated, structured, collateralized and hybrid financings Securitizations (synthetic and true sale) Bank, securities dealer, stock exchange, insurance and investment fund licenses, regulation and compliance Bank contracts (asset management, custody, collateral, banking secrecy) Litigation and regulatory proceedings Contacts: René Bösch rene.boesch@homburger.ch Benedikt Maurenbrecher benedikt.maurenbrecher@homburger.ch Peter Widmer peter.widmer@homburger.ch Daniel Daeniker daniel.daeniker@homburger.ch Hansjürg Appenzeller hansjuerg.appenzeller@homburger.ch Daniel Haeberli daniel.haeberli@homburger.ch