Matthew Feargrieve: Evolving Asset Management Regulation in Switzerland Part I
9:33 PMMatthew Feargrieve on The Changing Face of Alternative Asset Management in Switzerland
Welcome to the Matthew Feargieve blog. Matthew Feargieve works with manager's third-party vendors and fund service providers when reviewing the fund's administration, custody and prime brokerage agreements. Switzerland is the third largest global centre of alternative asset management, after North America and the United Kingdom. Around three times the size of Connecticut, the small, central European country boasts approximately 15% of global assets under management. This article examines the composition of the Swiss alternative asset management market, focusing on single managers and managers of funds of hedge funds (FoHFs); reviews the current and prospective regulatory environment in Switzerland for each type of manager; and assesses the country’s future generally as a centre of alternative asset management against the backdrop of economic austerity and regulatory zeal in Europe.
At a Glance
- Switzerland is the largest centre in continental Europe for managers of alternative assets,
- with France coming second and Germany and the Netherlands a joint third.
- The main financial centres in Switzerland are Zurich, Geneva and Lugano.
- There is approximately US$7 trillion of assets under management by banks in
- Switzerland, approximately 60% of which are booked in Zurich, 30% in Geneva and 10%
- in Lugano.
- There is approximately US$100 billion of alternative assets under management in
- Switzerland held in single manager funds.
- There is approximately US$300 billion of assets under management in Switzerland held
- in FoHFs.
Single Managers
Switzerland has an approximate 5% share of the global single manager market. The country is
home to 10 of the world’s 30 largest single managers, together with around 500 smaller
managers. There is approximately US$100 billion of alternative assets managed in Switzerland
by single managers, around half of which is managed in Zurich with the balance split between
Geneva and Lugano. Of that US$100 billion:
- 60% is held in Cayman Islands domiciled investment funds;
- 15% is held in British Virgin Islands funds;
- 10% is held in Luxembourg funds; and
- 5% is held in Guernsey funds.
Swiss single managers, operating largely outside the EU regulatory framework, have a
demonstrable preference to house their assets in the leading “offshore” financial centres
(principally the Cayman Islands) and, to a lesser extent, EU fund domiciles like Luxembourg.
FoHF Managers
There is approximately US$300 billion of assets under management in Switzerland and held in
funds of hedge funds. Although having been hit hard by redemption pressures, illiquidity of
underlying funds and the Madoff fraud during the past few years, Swiss FoHF managers control
one-third of global FoHF assets. Switzerland is home to 6 of the world’s 15 largest FoHF
managers, the majority of which are in Zurich. Around 75% of Swiss FoHF assets are managed
in Zurich, the balance in Geneva. Swiss FoHFs attract three-quarters of their assets from
European investors, mainly institutional allocators, and this goes some way to explain the
domicile choice for the FoHFs. Of FoHF assets of US$300 billion:
- 43% is held in Swiss domiciled investment funds;
- 29% is held in Luxembourg funds; and
- the remainder is held in Jersey and Guernsey funds.
In contrast to the domicile preferences of single managers, Swiss managers of FoHFs prefer
“onshore” to “offshore” domiciles. The high level of allocations from EU institutional investors,
such as pension funds, is the key driver behind their choice of EU fund domiciles over non-EU
domiciles. See “Benefits and Burdens of Redomiciling a Hedge Fund to an EU Jurisdiction,”
The Hedge Fund Law Report, Vol. 4, No. 38 (Oct. 27, 2011). There will continue to be a
demonstrable reliance by Swiss FoHF managers on assets from EU investors, and the changes
being wrought by the Alternative Investment Fund Managers Directive (AIFM Directive) in the
EU regulatory landscape is expected to have a significant impact on Swiss FoHF managers.
Check back for PART II.
Matthew Feargrieve delivers legal advice and solutions to managers and general partners of investment funds, as well as to fund investors and service providers. Find out more about Matthew Feargrieve online here. You can follow his latest updates on the Matthew Feargrieve Twitter page and also connect with him on the Matthew Feargrieve Crunchbase page. Read the latest Matthew Feargrieve news here.
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