The Future Swiss Fund Business

THE FUTURE SWISS FUND BUSINESS

THE FUTURE SWISS FUND BUSINESS

Featuring content, conversations and analysis drawn from FundForum International 2015 Brought to you by:

Brought to you by:

1

2015 2015

THE FUTURE SWISS FUND BUSINESS

INTRODUCTION The fund industry worldwide is undergoing profound changes, and as part of this process Switzerland is also adapting its rules and strategies to remain a key player in the business.

The efforts of institutions and operators are focused on seeking growing international integration and harmonisation, including at a legislative level, although without losing some of the unique features which have led to the country’s success. The changes are also strategic, as the Swiss financial centre is moving from a traditional one focused on all aspects of private banking, and therefore a critical distribution market, to a place where fund management and creation increasingly take place.

As I walk through the streets of Lugano – the third main Swiss financial centre after its “big sisters” Zurich and Geneva – every day, I encounter professionals working in one of the 200 or so fund management companies currently active in the city with increasing frequency. These companies are progressively becoming integrated with the traditional base of private banking operators and the growing community of commodity traders working in the hundred or so commodity trading companies that have chosen Lugano as their base of operations over the last 10 to 15 years.

FRANCO CITTERIO Chairman, Ticino for Finance

where operators can combine excellent business infrastructure with an urban and natural environment on a human scale. As we say in Lugano, Swiss quality with a touch of Italian lifestyle.

As an institutional body, Ticino for Finance’s role is to support and facilitate this development and make itself available to operators interested in finding out more about the financial centre. We are therefore delighted that in a prestigious context like the Fund Forum International the spotlight is on Switzerland, because we are convinced that its role within the fund industry is set to strengthen over the next few years. At the same time, Lugano will also continue its evolution towards an international status as a “boutique financial centre”, where the proximity between investors and managers will make it possible to create tailor made solutions of the kind that are difficult to implement in large global centres.

What role is there, then, for a financial centre like Lugano in the Swiss and international contexts?

The city, and in general the whole of the Canton of Ticino, the area where it is located, offers all the benefits of the Swiss system – political, economic, social and legal stability, a modest tax burden, relatively straightforward access to seed capital, and a multilingual, multicultural social context. Last but not least, it’s a location offering a good work-life balance 2

Brought to you by: 2015

FEATURING CONTENT,CONVERSATIONS AND ANALYSIS FROM FUNDFORUM INTERNATIONAL 2015

CHAPTER 1: BACKGROUND

Switzerland is recognised as a world leader in the financial sector. It is a reputation well-earned and well-deserved. The country has one of the most competitive levels of taxation in Europe and is a simple market to navigate with a limited number of reference laws and a legislative framework in line with the most important international markets.

Switzerland also continues to be one of the most important countries in terms of assets under management in UCITS funds and remains one of the strongest economies in Europe with significant growth in recent years.

Recognised worldwide as the undisputed leader in the off-shore private banking industry, Switzerland also has major institutional investors located within its borders, able to serve as essential partners for managers of alternative investment instruments.

The Swiss financial sector is one of the most advanced centres of expertise in the world, and over time it has fostered the development of services and related facilities that provide operators with the highest levels of quality and efficiency.

Switzerland, in short, has a huge amount to offer.

1 FUND MANAGEMENT THE FIGURES

The health of the fund management sector in Switzerland is clear with 7,500 authorised funds for sale to the public, 1,400 of which are based in Switzerland. The country has 300 billion francs worth of assets under management in UCTIS funds.

Worldwide, Switzerland has a 27% market share in private offshore banking.

There is a large, well established fund management industry flourishing in a welcoming regulatory environment, bolstered by exceptional legal, tax and other support services.

2

DISTRIBUTION

WELL DEFINED RULES

Distribution is defined as any offer and announcement of collective investment schemes that does not exclusively target qualified investors.

One of the big attractions of the Swiss regulatory environment is the simple rules governing this area.

Foreign collective investment schemes distributed solely to qualified investors require no approval from the supervisory authority, the Federal Financial Market Supervisory Authority (FINMA) but must meet certain requirements including the designation of a representative and a payment office for units distributed in Switzerland.

Distribution of foreign collective investment schemes in Switzerland (or from Switzerland) to non-qualified investors does requires FINMA approval.

In addition, distributors must also be subject to appropriate supervision in Switzerland and in the country where they are headquartered.

“THE SWISS FINANCIAL SECTOR IS ONE OF THE MOST ADVANCED CENTRES OF EXPERTISE IN THE WORLD�

3

Brought to you by: 2015

THE FUTURE SWISS FUND BUSINESS

THE HEALTH OF THE FUND MANAGEMENT SECTOR IN SWITZERLAND IS CLEAR WITH 7,500 AUTHORISED FUNDS FOR SALE TO THE PUBLIC

Lugano is the country’s third financial centre. Along with its region - the Canton of Ticino – Lugano is well known for wealth management activities especially with Italian clients that share a common language and culture. The centre has diversified its activities to include asset management and commodity trading.

3

REGULATION

INTERNATIONALLY COMPATIBLE

We all operate in a global market and the regulatory framework in Switzerland is designed with that in mind at all times.

The Swiss regulatory system for fund management is consistent with, and comparable to, the European and US regulatory framework both in terms of structure and content.

The functionality and transparency of the market are guaranteed by the presence of FINMA

4

There are nearly 200 businesses in Lugano and the surrounding area that are directly engaged in managing traditional and alternative funds. That number continues to rise as more companies recognise the ease of operating in the region. Strong legal, tax, insurance and IT sectors are all well established.

Switzerland is in the unusual and enviable position of having several world-class financial centres within its borders. Its reputation as a stable and competitive market, combined with its wealth of knowledge and support, ensure that businesses that do business in Switzerland are able to compete at the highest global level.

A COUNTRY OF GLOBAL FINANCIAL CENTRES

Swiss cities consistently rank amongst the most important financial centres around the world with Zurich and Geneva standing with London as Europe’s leading markets.

4

Brought to you by: 2015

FEATURING CONTENT,CONVERSATIONS AND ANALYSIS FROM FUNDFORUM INTERNATIONAL 2015

FACTSHEET BACKGROUND

5

Brought to you by: 2015

THE FUTURE SWISS FUND BUSINESS

CHAPTER 2: LIVE OPINION

What role does the swiss fund management sector play in the private banking sector? The panel discussion at FundForum 2015 brought together industry experts from the region to discuss the future opportunities and challenges facing the Swiss Fund Management sector.

FRANCO CITTERIO President, Ticino for Finance

“By participating in events like this in Monaco, we try to give more information [about Ticino and Lugano] to the rest of the financial centre.”

MICHELE MALINGAMBA Head of Special Funds, BSI Bank

“The new regulatory framework [in Ticino] will force us to be more competitive, more transparent…and to deliver an even higher standard of service.”

PHILIP KALUS Managing Partner, Accelerando Associates

“Switzerland is potentially the largest fund market in Europe given the global reach of Switzerland.”

NICOLA CARCANO Chairman of Executive Board and CIO, Heron Asset Management

“The whole of Switzerland is undergoing a big transformation so there is more competitive pressure but … these challenges can represent an

important opportunity.”

NEIL CARNEGIE Founder, General Manager, Member of the Board of Directors, Carnegie Fund Services

“Something dominating discussion around regulation in Switzerland is having equivalence to other European regulation.

For those fund providers coming from abroad to distribute their products that provides you with legal security.”

6

Brought to you by: 2015

FEATURING CONTENT,CONVERSATIONS AND ANALYSIS FROM FUNDFORUM INTERNATIONAL 2015

CHAPTER 3: ANALYSIS

Reconfiguring the Swiss Funds Business: New Opportunities in Response to New Regulation, Increased M&A and Fund Flow Changes as Secrecy Laws Disappear This fascinating session focused on the changing nature of regulation in Switzerland and the consequent impact on product development, distribution and fund selection.

A MARKET WITH GREAT GROWTH POTENTIAL Philip Kalus from Accelerando Associates opened up the discussion with some scene-setting statistics to demonstrate the impact of recent regulatory changes in Switzerland. His tone was upbeat: “Switzerland is potentially the largest fund market in Europe given the global reach of Switzerland.”

Against the backdrop of a changing regulatory landscape the key challenge for those wanting to sell into, and in, the country is up-to-date legal and regulation knowledge that will give reassurance to investors.

There has been a dramatic growth in the number of FINMA authorised distributors, says Neil Carnegie of Carnegie Fund Services, with more than 700 registered. On the distribution side, the number of distributors authorised by FINMA solely for distribution in Switzerland has increased from around 40 to more than 300 – and that number is set to increase as there is a backlog in applications to authorities.

MORE TRANSPARENCY AND FLEXIBILITY Andre Haubensack of Standard Life Investments pointed out that he had not noted any decrease in activity in the market: “It’s a very lively market and it’s going through a lot of change – in fact, it’s very healthy. Banks are cleaning up their business base, renewing their IT infrastructure and moving forward even faster.”

Michele Malingamba of BSI Private Bank added: “I think the fact that Switzerland is becoming more ‘European’ with new legislation is bringing more transparency and flexibility and allows institutions’ money to be managed more transparently. This is a big plus for everybody.”

“Regulation went up sharply from ‘anything goes’ to a highly regulated market in a very short space of time,” added Philip Kalus.

WHAT’S THE IMPACT OF CHANGE? In terms of impact on products, Nicola Carcano of Heron Asset Management believes the big change in the last ten years has been the move away from offshore alternative funds with a low level of regulation. Instead there is more interest in funds using alternative investment strategies.

7

Brought to you by: 2015

THE FUTURE SWISS FUND BUSINESS

“REGULATION WENT UP SHARPLY FROM ‘ANYTHING GOES’ TO A HIGHLY REGULATED MARKET IN A VERY SHORT SPACE OF TIME”

3

“It’s important to understand the history of the Swiss market,” added André Haubensack. “In the past there was virtually no information – today you have more transparency.” In Mr Haubensack’s view, the younger generation of investors and fund managers demand more transparency. They favour a multi-asset approach as people seek an absolute return in an environment where risks are high and returns are often low.

Michele Malingamba believes another change is in the communications about products and investment to clients. “We have to understand the products and explain WHAT’S NEXT FOR that to clients… You have to asses the risk profile of the SWITZERLAND? clients in a more efficient way and try to offer solutions and products that are more-tax efficient.”

Nicola Carcano of Heron Asset Management highlighted impending issues with the pensions It’s not just Swiss regulations that are changing; there system in Switzerland. He points out that the yield are also imported regulations from other countries that on most Swiss government bonds is negative and have to be implemented by Swiss banks. As André this is creating issues for Swiss pension funds; Haubensack of Standard Life Investments says: “It’s increasingly institutional investors are re-thinking not just coming from the Swiss side. It underlines how their investment strategies. “We see they are international the industry has become.” reducing focus on domestic investments in favour of more international investments and more alternative In Neil Carnegie’s view, this equivalence to other investments which are focused on managing and European regulation is dominating discussion in balancing risk.”

Switzerland. Fund selectors are increasingly looking for regulated products that are domiciled in European Michele Malingamba of BSI Private Bank added jurisdictions such as Luxembourg, Ireland, the UK that Switzerland is moving from a defined benefits or Germany. Products based in those jurisdictions are system to a defined contribution system; these the products of first choice. changes in the pensions process will inevitably

THE INFLUENCE OF PRIVATE BANKING

open up new opportunities for some alternative investment products.

As Nicola Carcano points out, asset management in Switzerland started with private banking. This has led to the development of many specialised products structured by private bankers or investment consultants (and more in general to a tailor made approach - not a mass market one toward clients).

8

Brought to you by: 2015