Swiss overhaul unsettles asset managers
overhaul that has unsettled money managers who departed London for the promise of an easier regulatory regime in the alpine country.
By Sam Jones, Hedge Fund Correspondent
Switzerland is preparing sweeping new rules for its traditionally freewheeling hedge fund industry, in an overhaul that has unsettled money managers who departed London for the promise of an easier regulatory regime in the alpine country.
The Swiss government has drafted amendments to laws that will make the country – once a byword for “light-touch” oversight of asset management – into one of the most exacting jurisdictions in the world to run a hedge fund.
The rules will also affect Swiss investors, who form one of the biggest client bases for the $2tn global hedge fund industry. As a result, money managers from Texas to Tokyo who fail to meet the new demands could be forced to surrender hundreds of billions of Swiss francs.
“Switzerland has gone from [being] one of the more reasonable jurisdictions to one of the more difficult to run hedge funds in,” said Robert Mirsky, head of hedge fund advisory at KPMG. “It is a strange turnaround.”
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The changes are potentially “massive” according to David Butler at Kinetic Partners, a consultancy firm that has helped 50 London-based hedge funds shift staff to Switzerland over recent years. Brevan Howard and BlueCrest Capital, Europe’s second and third largest funds respectively, are among those that relocated core operations from London to Switzerland, costing the UK exchequer hundreds of millions of pounds in lost tax revenue.
In a spate of heavily attended breakfasts and luncheons at luxury Zurich and Geneva hotels this month, hedge fund managers and private bankers have sought to get to grips with the potential scope of the proposed new laws, which have not yet been translated into English.
The regulations – which have been proposed by the Federal Council and must now work their way through the Swiss parliament – are intended to bring Switzerland into line with the European Union’s own controversial new hedge fund regulations, but also to surpass them in key areas with a so-called “Swiss finish”.
Finma, the national regulator, said that the rule changes “aim to raise quality in asset management . . . and strengthen investor protection.”
Under the new regime, any overseas investment fund that takes money from a Swiss institution will have to comply with requirements laid out by Finma and also base a permanent representative in Switzerland.
Finma’s requirements are likely to include demands for tax and asset transparency as well as minimum standards of governance and rigorous regulatory oversight. Under the EU’s new directive, hedge funds must provide investors and regulators with detailed information on their activities, submit to independent audits and abide by restrictions on leverage and staff pay.
The new Swiss laws would also strip wealthy individuals – the mainstay of Switzerland’s financial sector – of their automatic status as “qualified investors” permitted to deposit money with hedge funds directly.
“[The new laws] will effectively limit the possibility to distribute offshore alternative investment funds in Switzerland,” said Marcel Jouault, a former hedge fund manager and chief executive of the Pfäffikon Financial Centre, on the shores of Lake Zurich.
Jiri Krol, director of government and regulatory affairs for AIMA, the hedge fund industry’s lobby group, said: “You are moving from zero regulation to a lot of regulation in one fell swoop. The potential shock could be big. Given the amount of global regulatory change at the moment I’m not sure people are aware of this, especially outside of Switzerland.”
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