Impact of the new regulation
Let's explore with Hugo Fund Services, the new representative activity set up by Yves Hervieu-Causse, the impact of the new regulation for managers.
Anne-Cathrine Frogg Spadola
Can you give us an update on the current state of the Swiss market for distribution?
The strong 2010-2012 trend supporting allocations to passive, benchmarked products has decelerated with new highs reached in equity and fixed income indices between 2012 and 2103. Today valuations are stretched in many sub-asset classes and sectors and investors are thinking twice before piling-on additional long only benchmarked assets. Slowly and cautiously, as 2008 is not forgotten, the current situation is creating conditions for re-considering active management and hedge funds. As of mid-2013, we have seen new hedge fund allocation mandates given to Swiss institutional allocators, something not seen since 2008. We believe that this may well be the sign of renewed interest for an investment style that had been deserted for quite a while. However, for the pure hedge fund demand, all depends in the long term on investors' acceptance of the 2/20 fee structure and restrictive liquidity terms.
Could you describe the main changes that impact fund distribution in Switzerland under the new Swiss distribution regime?
As of March 2013, distribution is now regulated and clearly defined. The main change is that non-Swiss funds can only be distributed to qualified investors through the appointment of a representative and paying agent. Non Swiss managers can therefore avoid the process of registering their funds with FINMA and be more flexible in the vehicle sold to investors. The Swiss regulators have chosen to regulate distributors rather than funds. For funds that were already distributed in Switzerland before September 2013, the transitory period ends in February 2015.
What are the positive elements of the new regulation and can you describe briefly the role of the representatives?
A very positive element, particularly for the alternative industry, is the lack of restrictions on the type of fund that can be distributed to qualified investors in Switzerland. The regulator has taken into consideration the Swiss professional, qualified investor environment and understood the need to maintain the current choice of vehicles. However, distribution of these products is clearly more monitored and regulated. The Swiss representative will serve as a link between the regulator, investors and FINMA, but also as an entity ensuring that distribution of non-Swiss funds is organised to comply with local rules.
Do you think the regulatory change will discourage alternative funds from coming to Switzerland?
We think this should not happen. Investors and fund managers will realize that the new regulation is open to all types of funds and also provides a clear legal framework and legal certainty for distribution to Swiss qualified investors. Switzerland will offer an open space of distribution for diversified types of funds to be selected for their added value rather than their structure or domicile.
Based in Geneva, Hugo Fund Services provides representative services for foreign funds marketing in Switzerland to qualified investors.
Hugo Fund Services focuses on hedge funds and private equity funds and is authorised and regulated by FINMA.
Yves Hervieu-Causse, Anne-Cathrine Frogg Spadola Hugo Fund Services, Geneva, Switzerland www.hugofunds.ch