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SWISS FINANCIAL SERVICES NEWSLETTER Special Edition Investment Management May 2012

KPeople 2010 | 03


Contents 04 07 10 16 20 23 28

Keeping the Doors to Europe Open: Revision to the Collective Investment Schemes Act

Development of the Swiss Fund Markets

Independent Asset Managers in Switzerland: A Clear Strategy Is Required

ESMA Final Report on AIFMD and CISA Partial Revision

Are We Facing an Impending Wave of Consolidation in the Swiss Independent Asset Manager Industry?

The Future of the Swiss Investment Foundation

Unexpected Tax Pitfalls When Investing in U.S. Securities through Investment Funds


Constant Change – In Group Composition as Well?


The Evolution of Asset Pooling


Sovereign Wealth Funds Are Turning into Important Drivers of the Real Estate Market


GIPS 2010: First Experiences






Editorial Dear Readers The latest developments in financial markets law have a sustained impact on the economic environment for asset management in Switzerland. These developments include the adoption of the EU Alternative Investment Fund Managers Directive (AIFMD), which has sparked fierce debate in political, regulatory and financial circles. AIFMD has a direct effect on Swiss legislation in that Swiss asset managers can no longer operate on behalf of collective investment schemes domiciled in European countries without a revision of the Swiss Collective Investment Schemes Act (CISA). The corresponding message from the Swiss Federal Council on an amendment to the CISA is therefore a topic for discussion in a number of articles. Alongside the AIFMD, however, the new Ordinance on Investment Foundations should not be seen as some sort of “regulatory sideshow,� not least because these institutions manage assets worth some CHF 90 billion! In this issue of the Swiss Financial Services Newsletter, we examine what the future holds for Swiss investment foundations from a legal perspective.

IFRS and GIPS are two further sets of regulations undergoing steady transformation. For many readers, an explanation of these standards is now compulsory reading. Other topics include the fiscal pitfalls of investing in U.S. securities via funds, the role played by sovereign wealth funds on the capital markets, and the new investment opportunities that are being created for smaller institutional investors by asset pooling. This year will still hold a number of challenges for all of us. With our newsletter, we hope to take due account of the latest developments and provide you with comprehensive information. We hope you enjoy reading this issue and find it interesting and stimulating.

With best wishes

Markus Schunk Head of Investment Management


Keeping the Doors to Europe Open The planned revision to the Collective Investment Schemes Act is necessary and urgent for market access; however, the revision in its current form goes beyond those aims. by Gerold Bührer, President economiesuisse

The changes in European law are forcing changes within Swiss law even though the current Collective Investment Schemes Act has already been in force since 2007. Time is pressing. Without changes, Swiss financial service providers will be excluded from the most important European markets beginning in 2013. For this reason, Swiss law should be amended by mid-2012.


International market access must be preserved The EU will be regulating the handling of alternative investments, such as hedge funds and private equity with the Directive on Alternative Investment Fund Managers (AIFMD). The European financial market’s new regulation is of crucial significance for Swiss asset managers. As a result of the amendments to the Collective Investment Schemes Act, the doors to the European market should remain open for Swiss asset managers. This is a central point from the view of economiesuisse. The Swiss financial center finds itself in a rebuilding phase as a result of the numerous events at the international level. Denial of important markets for Swiss financial service providers is increasingly noticeable. Thus, the preservation and expansion of market access possibilities in Europe are more important than ever. In the case of collective investments, this requires expanded subordination under the supervision of FINMA above all. In the consultation phase in past years, the necessity of corresponding partial revisions of the Collective Investment Schemes Act was recognized. Last October, 81 parties, organizations and affected financial service providers provided at times very detailed feedback concerning the draft and expressed significant reservations in the process. The bureaucratic design and restrictions that are too strong and overreaching were rightfully criticized. With the draft having been received by the Federal Parliament, it will be known whether the Federal Council has kept its word and whether the concerns were taken into account. Along with securing market access, legal security and prevention of unnecessary regulations with resulting costs are central points according to economiesuisse. For the preven–

tion of legal uncertainty, the terminology of the Collective Investment Schemes Act is to be reconciled with that of the EU and Swissisms should be eliminated. In particular, overreaching national regulations should be omitted. “Swiss Finish” unnecessarily constrains companies Both the competitive abilities as well as the time pressure reduce the revision to the absolute necessary. That investor protection receives appropriate meaning is not a matter of dispute. The economy, however, decidedly rejects the “Swiss Finish,” which exceeds international standards and which goes beyond the EU guidelines. Furthermore, the leeway of the EU rules must be aggressively exploited. We cannot unnecessarily burden our financial center even more in order to serve merely as a model student. Many consultation phase participants have also pointed out these weak points. Lawmakers must refrain from unnecessary restrictions. An example is the legal form of the sole trader, who should be stricken out in accordance with the consultation draft. This I not required by the EU. This legal form must therefore remain a possibility. In general, Switzerland must take advantage of its leeway and use its freedom of choice. Thus, for example, a “régime light” must be created for managers of smaller fund assets that do not distribute shares in the EU or the EEA. Not all vendors want to be active in the EU and should thus be subject to amended rules. In addition, holding companies and “family offices” should be excluded as in the AIFM Directive. Client categorization should occur in three categories as in the EU. The consultation draft only recommended recognition of two client categories for Switzerland: asset management clients with asset management contracts should be stricken from the catalog of qualified investors.


Keeping the Doors to Europe Open: Revision to the Collective Investment Schemes Act

Broad scope In addition, the broadly defined terms of operation, the restriction of the approved legal forms for asset managers of collective investment schemes, their service catalogs as well as the increased requirements for representatives of foreign collective investment schemes were in particular criticized in the consultation phase. As a result of the expansion of the scope of applicability to all management or safe-keeping activities of collective investments of any type, the scope of applicability will be extended a great deal. Even more collective investments will become subject to the law as a result of the expansion of the definition of operations.

“Economiesuisse considers strong market access to be a primary objective for all industries. Swiss law must target this goal and be amended in a manner that maintains its competitiveness.” Implementation will prove to be very challenging. All changes must be implemented in a very short period of time. Due to time, capacity and information reasons, the self-regulatory and industry organizations under Collective Investment Schemes Act must play the central role. If the duty were to be left solely to the state authorities, bottlenecks and friction that would harm our financial center would become unavoidable. Costs and benefits must be balanced The recommended revision will lead undoubtedly to an additional increase in costs. Additional cost-intensive hurdles will arise on important fronts for the funds and asset management branches. For smaller institutions, it will be very difficult to obtain approval due to the new requirements. For this reason, from the view of the economic umbrella organization, a better cost and benefits estimate is critical. In addition, more consequent possibilities for minimization of the implementation costs are to be sought within the implementation. Unfortunately, concrete details are not yet known and it is to be hoped that they will at least be included in the communication concerning the consultations. Open tax need As regards the tax aspects of Collective Investments, there is still a need for action, although this topic is (still) not the subject matter of the current revision. Here, the EU naturally does not impose any specific methods due to internal competence reasons. In the interest of competitiveness, effective improvements should be undertaken in this regard. As a result, real estate funds with indirect property ownership will be at a disadvantage opposite real estate funds with direct property ownership. The corresponding legal foundation should be amended such that these wrinkles are ironed out.


New Collective Investment Schemes Act must be able to withstand extremes Finally, it should be noted that a revision of the Collective Investment Schemes Act is both important and appropriate. However, despite the tight deadlines, it is necessary to proceed with the necessary diligence and the critical points cannot be ignored. The Federal Parliament is called upon to deliberate upon the documents with a healthy dose of skepticism and to review the recommendations based upon its capacity to compete, legal security and prevention of cost intensive bureaucracy. Above all, the process should involve listening to practitioners from the industry and not merely the administrative experts. The new Collective Investment Schemes Act must also be fit for practical application and should not further burden the Swiss financial market.

CONCLUSION The revision of the Collective Investment Schemes Act is important for our industry. The following parts of the present draft need revision:

• Excessive “Swiss Finish” is harmful and should be avoided • Definition of distribution should not be too broad • The range of services and legal forms for asset managers should not be substantially limited

Gerold Bührer President economiesuisse +41 44 421 35 35

Development of the Swiss Fund Market Good Stability, Institutionalization and CISA Partial Revision by Dr. Matthäus Den Otter, CEO Swiss Funds Association SFA

Viewed over several years, the Swiss fund market has proven relatively stable. The losses suffered during the financial crisis were followed by a recovery in which different fund categories developed in different ways. All figures in this article are based on data from Lipper and Swiss Fund Data AG, which the Swiss Funds Association (SFA) publishes monthly as statistics on the Swiss fund market. All funds licensed by the Swiss Financial Market Supervisory Authority (FINMA) are included. Volumes relatively constant When analyzing fund market data, two different aspects must always be taken into account: 1) The performance of investments, determined by the equity and bond markets and currency trends. 2) The balance of subscriptions and redemptions, which equates to the net inflow or outflow. Development of net assets in the Swiss fund market between 2006 and today


net assets in million CHF

700 600 500 400 300 200 100 0 2006 Real Estate

2007 Other

2008 Mixed Assets

2009 Money Market

2010 Equity

2011 Bond

The development of the Swiss fund market during the last five years is characterized by a relatively clear “stability.” While the total fund assets of the Swiss and foreign funds approved and licensed for distribution by FINMA amounted to CHF 678 billion at the end of 2006, at the end of 2011 – following two major crises – they still amounted to CHF 621 billion, despite the fact that the debt and euro crisis had not yet been overcome. A year before that, in the “interim high” after the financial crisis, the fund assets had even returned to the same level as in 2006.

When analyzing the performance of the individual fund types, however, one sees immediately that the investors have not survived the crises unscathed. Whereas equity funds were the clear leader on the fund market five years ago with a market share of just under 36 %, at the end of the year their market share was 31.6 %, mainly due to share price trends. As a consequence of the general uncertainty sparked some months ago by the euro crisis and the resulting general slump on the stock markets, equity funds were narrowly overtaken by bond funds for the first time (32.2 %). Asset allocation funds (“mixed assets”) also suffered losses (market share 11.6 %) and were – unsurprisingly – “overtaken” in 2008 by money market funds, which currently account for 13.3 % of total fund market volume. Increase in institutional business While the number of Swiss people who hold fund units directly is leveling off at 17 % according to an AXA study, the amount that they are investing indirectly via funds is growing steadily. This “institutionalization” of the fund business encompasses Swiss funds for qualified investors on the one hand, and institutional equity classes of Swiss and foreign public funds on the other.


Development of the Swiss Fund Market: Good Stability, Institutionalization and CISA Partial Revision

Foreign funds that are reserved for qualified investors and are only privately placed are not included, however, as they do not currently require a FINMA license for distribution. Against all the odds, this institutional business has continued to develop steadily, growing from CHF 130 billion to CHF 225 billion by the end of 2011. Here too, bond funds dominate (CHF 95 billion), ahead of equity funds (CHF 85 billion) and other categories. That Switzerland has replaced Luxembourg as the number one fund domicile in absolute terms is probably due to the influence of the institutional funds focusing on Swiss institutional investors, but also the rapid growth of ETFs under Swiss law – and this despite the fact that Swiss funds (can) play only a modest role in international fund distribution.

Exchange Traded Funds (ETFs) have grown continuously since 2006 from CHF 5 billion to over CHF 45 billion. Although they can also be termed “profiteers” of the financial crisis, in recent times the fastest growth has no longer been enjoyed by ETFs based on equity indices but by commodities. On the supplier side, it is noticeable that, after a jump (+4) in 2006, the number of fund management companies stagnated in the years that followed. At the end of 2011, there were 48, while there were 90 asset managers of collective investment schemes. In contrast, the number of banks and securities dealers increased from 409 to 674 (316 banks, 358 securities dealers – of which 294 were banks only). A sharp fall in the number of foreign representative offices was recorded (from 134 to 88).

Development of net flows between 2006 and today 2011 in detail Money market funds posted net cash outflows for every month except August and November. They totaled around CHF 3 billion over the course of the year. Although much happened on the foreign exchange markets – they are not insignificant within this fund category in statistical terms because of the exchange rates – there was little left in the end. Although the Swiss franc emerged as one of the strongest major currencies, its revaluation against the euro and US dollar remained relatively limited thanks to the exchange rate floor set by the SNB against the euro. In total, the value of all money market funds declined by some CHF 3 billion in the course of the year.

40 30

net flows in billion CHF

20 10 0 -10 -20 -30 -40






Real Estate

2008 Mixed Assets




Money Market


Looking at net cash flows, it again comes as no surprise that, in the crisis year of 2008, money market funds, with an inflow of new money in the amount of almost CHF 40 billion, were clearly in the lead, being particularly in demand as a safe haven in turbulent times. In contrast, equity funds recorded outflows of funds of around CHF 30 billion. Last year, most notably the categories equity and other funds, including for example commodities funds, posted inflows. As in the two previous years, money was again withdrawn from the money market funds. Viewing the “top 50” individual investment strategies, the skyrocketing growth of “Commodities Funds,” which barely existed five years ago, stands out; but today these take a proud fourth place behind “Bond CHF,” “Equity Global,” and “Equity Switzerland” (managed assets as at the end of 2011: CHF 32 billion). The list also includes all ETFs whose underlying assets are precious metals or commodities. “Emerging Market Bond Funds” and “Bond Convertibles Global” have also developed from niche products into key asset classes.


The category of fixed-interest investments with medium and long terms gained CHF 4.5 billion in value in the reporting year, while net inflows and outflows remained more or less balanced. The euro crisis, which dominated proceedings in the second half of the year, served as a reminder that bonds harbor both interest and credit risks. Between August and December, bond funds recorded around CHF 6.8 billion in net cash outflows. Impending sovereign defaults and concerns over a weakening economy sparked a marked influx of capital into Switzerland, further accelerating the downward trend in bond yields. Despite net cash inflows in the amount of around CHF 4.4 billion, equity funds shed CHF 23 billion in value between the beginning and end of the year. Both inflows and prices increased significantly in the first four months of 2011, but the shock waves sent by the earthquake in Japan and the intensifying debt crisis in Europe caused the market to slacken from May. The risk of a Greek default and the increasing interest rates for Italian and Spanish government bonds even led to a drastic slump in equity prices in the summer and thus also in the volume of equity funds. Prices recovered somewhat in October, meaning that, for the most part, the year ended on a more confident note at least. From the perspective of investors operating in Swiss francs, the influence of currency on their returns decreased again in the second half of the year.

As expected, their equity components caused asset allocation funds to suffer particularly in the third quarter of 2011, but they also benefitted from the slight market recovery from late fall onward. The fund category had to stomach net cash outflows in all months, worth some CHF 2.5 billion in all. The total volume amounted to CHF 71.7 billion.

“While the number of Swiss people who hold fund units directly is leveling off at 17 %, the amount that they are investing indirectly via funds is growing steadily.” 2011 was a good year for the construction and real estate industry. Real estate funds gained CHF 1.3 billion in value. Because only relatively low net cash inflows were recorded on balance over the year as a whole, the recovery of around 5 % is mostly down to increases in value of the funds. With a volume of CHF 26.1 billion, real estate funds ranked as the smallest but finest category. Here, it is not a question of demand but rather the limited supply of Swiss real estate, which at the current price level still promises sustainable returns in the long term. After the harsh losses as a consequence of the financial crisis, the alternative investments segment can look back on moderately positive development. Volume increased by CHF 7 billion to CHF 44.3 billion in 2011. The increase saw inflows of new money being recorded for the first time since the financial crisis, with the influx of new funds amounting to CHF 5.8 billion. Nevertheless, investor confidence is still taking a long time to return. At the end of 2011, 7,461 funds (+270 funds) were licensed for public distribution in Switzerland, of which 1,403 were governed by Swiss law and 6,058 by foreign law, dominated by 4,171 funds governed by Luxembourg law. The increase of 270 funds came as the result of brisk activity by key market players. The considerable number of restructurings stands out (voluntary liquidation or merging of funds in order to focus the product range), even though the fund providers, out of respect for their clients, took a very restrained approach to liquidating funds of suboptimal size. In the course of the year, therefore, for example 907 foreign collective investment schemes were newly licensed and 640 were abolished. A total of 110 corresponding products domiciled in Switzerland were newly approved. For 107 funds, FINMA supervision was repealed. Of the 1,403 Swiss funds, 644 were approved by FINMA only for distribution to institutional investors.

Luxembourg and Ireland were by far the leading foreign domiciles for funds licensed in Switzerland. With a total of 5,073 funds, their share was practically unchanged at the end of 2011 at almost 84%. Remaining in third place was France, followed by Liechtenstein and Great Britain. Partial revision of the CISA These figures show that the fund and asset management industry is solidly positioned. In order to maintain competitiveness in the future, better legal framework conditions are of crucial importance. The ongoing partial revision of the Collective Investment Schemes Act (CISA) is playing an important role in this regard. The recently published dispatch achieves the partial objective of “subjecting asset managers to the supervision of FINMA.” However, the proposed distribution regulations threaten discrimination against Switzerland as a financial center to an unprecedented extent anywhere in the world if improvements are not made, because EU regulations would be extended through Switzerland to the whole world. Some CISA provisions are more restrictive than the corresponding EU regulations and are abandoning sound, well-established features unique to Switzerland – which would be real own goals. In addition, measures to strengthen competitiveness and promote Switzerland as a production location are lacking, such as in the areas of singleinvestor funds, investment companies with variable share capital (SICAVs), real estate funds and limited partnerships for collective investments. In this regard, concrete proposals have been put forward by the SFA and the Swiss Bankers Association (SBA), which can be implemented with little legislative input. We are clearly in favor of international standards being met; however, the CISA should not be unnecessarily transformed into an “EU straightjacket” for the entire world, but rather create potential for growth for asset management, the important third pillar of the Swiss financial center. Providing suitable protection for investors and promoting Switzerland as a financial center are not mutually exclusive; instead they can complement each other usefully.

CONCLUSION The Swiss fund and asset management industry is solidly positioned. In order to maintain its competitiveness in the future, better legal framework conditions are of crucial importance. Merely aligning them with the new EU regime is not enough. Additional measures are required so that Switzerland can become even more attractive as a production location and use of the innovative vehicle that is the CISA can be optimized.

Dr. Matthäus Den Otter CEO Swiss Funds Association SFA +41 61 278 98 00

The ratio of the number of funds of foreign origin to the number of collective investment schemes under Swiss law has remained relatively constant in recent years at around 4:1.


Independent Asset Managers in Switzerland: A Clear Strategy Is Required by Markus Schunk and Pascal Sprenger

Over the next few years, the asset management business in Switzerland will have to adapt to a range of forthcoming regulatory changes that will bring new framework conditions for asset management services in Switzerland. Independent asset managers in particular, on whom this article will focus, need to begin adopting a clear strategy now if they are to remain successful in what is becoming an increasingly competitive market environment.


INITIAL SITUATION Current requirements for independent asset managers Unlike in most European countries, independent asset managers in Switzerland have so far not been subjected to any form of prudential supervision. This means that, under antimoney laundering legislation, they need only be affiliated to a self-regulating body (e.g. the Swiss Association of Asset Managers [SAAM]) or submit themselves to anti-money laundering supervision by the Swiss Financial Market Supervisory Authority (FINMA) as a so-called directly subordinated financial intermediary (DSFI).1 Furthermore, based on the requirements of Swiss law on collective investment schemes,2 asset managers have been obliged since 30 September 2009 to submit themselves to an industry organization’s code of conduct that has been approved by FINMA and to adhere to it in practice. As a basic principle, this obligation only applies to asset managers who use collective investment schemes for unqualified investors as part of their investment strategy.3 In practical terms, however, this has seen nearly the entire industry obliged to adopt such a code of conduct. Our experience has shown that a number of institutions incurred substantial costs on implementing their code of conduct. And yet it is clear that we are still some way from prudential supervision. In its Distribution Report, FINMA estimates there to be between approximately 2,800 and 3,600 independent asset managers in Switzerland.4 Asset managers for collective investment schemes It is already the case that an institution looking to manage Swiss collective investment schemes requires a license from FINMA, namely to manage collective investment schemes within the meaning of Art 13 para. 2 lit. f of the Collective Investment Schemes Act.5 There is also the option of voluntarily requesting a license as an asset manager for foreign collective investment schemes. However, this presupposes that the institution intends to act as asset manager for a foreign collective investment scheme for which the applicable foreign supervision law requires the asset manager to be supervised.6 The foreign collective investment scheme must, however, be subject to an “equivalent”

level of supervision,7 which means that primarily funds operated from offshore locations do not entitle a Swiss asset manager to a license. In practice, it is currently assumed that predominantly UCITS funds8 meet the requirements of Art. 13 para. 4 lit. b and c CISA. At this point, it is worth mentioning that banks, securities traders, insurers and fund managers do not require a separate license to manage collective investment schemes. Alongside those independent asset managers not subject to prudential supervision, asset managers for collective investment schemes represent a relatively small group of institutions overall. There are currently 91 asset managers in Switzerland licensed to manage collective investment schemes.9 Current economic situation is impairing earnings The economic difficulties facing Western European countries (euro crisis, sovereign debt) are leaving their mark on investors’ custody accounts. As part of a white-money strategy, countries are signing agreements on final withholding tax, making it increasingly less attractive for taxpayers from those countries to have their assets managed on a crossborder basis in Switzerland. Overall, this is leading to a fall in assets under management (AuM) and thus a decline in the earnings base. On the other hand, forthcoming regulatory changes are driving up costs, particularly for independent asset managers operating on a cross-border basis.10

THE MAIN REGULATORY INFLUENTIAL FACTORS AIFM Directive The “Alternative Investment Fund Managers Directive” (AIFMD) 11 obliges asset managers for collective investment schemes classed as “Alternative Investments” in the EU to be supervised. The two-year transition period ends in mid2013, by which point all asset managers for non-UCITS funds domiciled in the EU must be subject to appropriate supervision.


Based on Art. 2 para. 3 lit. e of the Anti-Money Laundering Act (Federal Act of 10 October 1997 on Combating Money Laundering and Terrorist Financing in the Financial Sector (Anti-Money Laundering Act, AMLA [SR 955.0]), asset managers may generally fall within the scope of application of anti-money laundering provisions.


Art. 6 para. 2 lit. b of the Collective Investment Schemes Ordinance (Ordinance of 22 November 2006 on Collective Investment Schemes, CISO [SR 951.33]) and FINMA Circular 09/1 “Guidelines on asset management.”


FINMA’s very broad definition of the term “public distribution” has meant that, in practice, the asset management industry as a whole has largely adopted a code of conduct in this way. However, FINMA’s interpretation has been successfully challenged before the Federal Administrative Court (ruling B3694/2010 of 6 April 2011) and before the Federal Supreme Court in a somewhat different case (ruling 2C_89/2010 of 10 February 2011).


FINMA discussion paper: “Regulation of the production and distribution of financial products to retail clients – status, shortcomings and courses of action,” October 2010, (“FINMA Distribution Report 2010”), p. 55.


Federal Act on Collective Investment Schemes of 23 June 2006, (“Collective Investment Schemes Act,” “CISA”).


Art. 13 para. 4 CISA.


Art. 13 para. 4 lit. c CISA.


Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS IV), OJ L302/32, 17/11/2009, p. 32.


Cf. FINMA homepage,, as at 27 January 2012.


An asset manager is deemed to be operating on a cross-border basis even if, for example, he merely signs an asset management agreement with a client not domiciled in Switzerland.


Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC (UCITS) and Regulations (EC) No 1060/2009 and (EU) No 1095/2010, OJ L174/1, 1/7/2011 / p. 1.


Independent Asset Managers in Switzerland: A Clear Strategy Is Required

Thus an independent Swiss asset manager currently managing a “Specialized Investment Fund” (SIF) domiciled in Luxembourg does not have much time left to make some fundamental strategic decisions:

• To apply for a FINMA license as an asset manager for

collective investment schemes. In this arrangement, the licensing application is extremely time-critical.12 In particular, the application must highlight the fact that Luxembourg law stipulates prudential supervision. • To merge with a partner with the requisite license. • To stop operating as an asset manager and continue as an advisor to the fund’s new asset manager. Here, it must be kept in mind that no asset management may be carried out, be it in legal or actual terms. • To cease all activities performed on behalf of the fund. In the arrangement listed above, it has so far not been possible to submit a licensing application as the applicable foreign legislation has not yet required the asset manager to be subject to any form of supervision.13 However, the AIFMD is set to be enacted in Luxembourg law in the near future. Partial revision of the CISA The partial revision of the Collective Investment Schemes Act is currently under way in Switzerland. The approval process is now complete and the Federal Department of Finance has published its dispatch on the draft legislation. The partial revision of the CISA is mainly geared toward harmonizing the applicable provisions of Swiss law with international standards, particularly the AIFMD, and should thus create the preconditions necessary to enable asset managers who now require appropriate prudential supervision under the AIFMD to apply for approval of this kind in Switzerland for the first time. The partial revision also includes general amendments in the areas of administration, custody and distribution.

The following amendments envisaged in the draft legislation are of particular relevance to asset managers:

• Supervision of asset managers

As a basic principle, all asset managers of Swiss and foreign collective investment schemes are to be supervised by FINMA. This means that the management of collective investment schemes of any kind (e.g. including Cayman funds) requires a FINMA license to manage collective investment schemes. However, the Swiss Federal Council is to be entitled at ordinance level to exempt smaller asset managers from the licensing obligations (“de minimis rule”). Furthermore, FINMA is also to be authorized to grant exemptions on a case-by-case basis. It is up to the reader to gauge, based on regulatory practice over the past few years, how much use the Federal Council and FINMA will make of the option to provide for exemptions in directives and FINMA circulars.

• Fund distribution

The supervision of distributors is to be extended. The distribution of funds intended exclusively for qualified investors (QIFs) will now also require a distribution license.14 However, deploying funds as part of an asset management mandate will not generally be considered distribution.

• New definition of the term “qualified investor”

Under the new draft legislation, neither high-net-worth private individuals15 nor investors who have signed a written asset management agreement16 with a supervised financial intermediary are to be considered qualified investors. Although high-net-worth private individuals are to be entitled to declare in writing their desire to be considered qualified investors (“opting-in”), the Federal Council can stipulate further conditions in addition to a required minimum asset volume, namely regarding the investor’s professional qualifications. Based on this new definition, many clients of asset managers will no longer be regarded as qualified investors in future. This would mean that asset managers would no longer be able to consider funds available only to qualified investors in their dealings with retail investors. As the deployment of funds within the framework of asset management will not count as distribution, the limiting factor here will be how a fund is structured. The proposed amendments are forcing asset managers to review their current business models. In particular, the pooling of monies in offshore funds to facilitate efficient asset management – a common practice nowadays – will come under pressure from the forthcoming regulatory changes.


According to statements by FINMA representatives, licensing applications must be submitted in full by 30 June 2012 at the latest to stand a chance of being approved by mid-2013.


Cf. Art. 13 para. 4 CISA.


Structural reform of the BVG The structural reform of the Ordinance on Occupational Retirement, Survivors’ and Disability Pension Plans (BVV2), which has attracted little attention to date, also affects the asset management industry. Art. 48 f BVV2 stipulates that, from 1 January 2014 onward, pension assets may only be managed by persons or institutions directly subordinated to FINMA, with the “Oberaufsichtskommission Berufliche Vorsorge” (“supervisory committee for occupational benefit plans”) authorized to grant exemptions. Only banks, securities traders, fund managers, insurers and asset managers for collective investment schemes qualify as institutions directly subordinated to FINMA – i.e. not independent asset managers not subject to prudential supervision. As things stand, the Collective Investment Schemes Act does not allow independent asset managers who manage pension assets but not collective investment schemes to apply to FINMA for a license to manage collective investment schemes. In the medium term, asset managers who currently manage pension assets will have to investigate the possibility of being licensed to manage collective investment schemes, e.g. by expanding their business activities to include the management of collective investment schemes, or alternatively by requesting an exemption from the supervisory committee. As it is still unclear what conditions the supervisory committee will attach to an application for an exemption, managers of pension assets are advised to address the new situation promptly. Nevertheless, it is hoped that, based on the FINMA position paper “Distribution rules” (see below; asset managers are to be subject to FINMA supervision across the board), the supervisory committee may be generous in its willingness to grant time-limited exemptions. Agreements on final withholding tax Switzerland is in negotiations with several countries regarding the signing of agreements on final withholding tax. As a basic principle, all these agreements are based on the corresponding agreements with Germany and the UK. The agreements on final withholding tax have a direct impact on asset managers on two levels, even though they themselves are not paying agents: On the one hand, a significant outflow of funds from Switzerland can be expected, be it directly (the one-off levy) or indirectly (transfers of capital to circumvent the one-off levy). The one-off levy alone translates to between 19 % and 41 % of the assets from the corresponding countries that are held in Switzerland.17 On the other hand, complex questions of tax law are already arising in the context of advising clients on final withholding tax. In all, asset managers will be forced to be more knowledgeable about their clients’ tax situation in future as the tax consequences of various investments have a significant influence on overall performance.


Art.19 para. 1 of the new draft CISA.


Art. 10 para. 3 lit. e CISA.


Art. 10 para. 3 lit. f CISA.


Based on the example of Germany.

In future, therefore, the absolute performance of a portfolio of securities after taking account of local tax regulations, e.g. in the UK, looks set to be decisive as far as investors are concerned. For this reason, asset managers will need appropriate knowledge of local tax requirements to carry out their asset management mandates. FATCA The Foreign Account Tax Compliance Act (“FATCA”) was passed by the U.S. Congress as part of the HIRE Act on 10 March 2010. FATCA is in line with the requirements of the U.S. “Stop Tax Haven Abuse Act 2009” and is primarily geared toward preventing tax evasion by U.S. persons. Socalled Foreign Financial Institutions (FFIs) must contractually agree to be bound by extensive reporting and due diligence obligations vis-à-vis the U.S. tax authorities or face the prospect of paying withholding tax at 30 % on their earnings from all U.S. securities. Under certain circumstances, asset managers also qualify as FFIs and must take appropriate action by 1 January 2014.

“For independent asset managers, a proactive approach to tackling regulatory changes can be absolutely vital.” FINMA position paper on cross-border risks Like all financial intermediaries, asset managers also need to be conscious of the risks harbored by their cross-border business if they want to avoid breaking the law (e.g. MiFID) in the target countries for their activities. In this context, custodian banks are feeling increasingly obliged to specify more concrete requirements for external asset managers’ business activities. FINMA position paper on distribution rules FINMA has drawn up a position paper based on the public consultation following the FINMA Distribution Report 2010. In content terms, the position paper affects virtually all financial intermediaries in that the requirements for the distribution of financial products are to be regulated in a “financial services Act,” defining standardized rules regardless of the regulatory status of a financial intermediary. Harmonization with international standards, particularly the European MiFID, is also designed to close a legal loophole for financial intermediaries operating abroad.


Independent Asset Managers in Switzerland: A Clear Strategy Is Required

For independent asset managers, the most fundamental change lies in the planned regulation of asset managers by FINMA: asset managers who are currently still regulated by a self-regulating body or industry association will in future be required to meet more stringent organizational requirements (e.g. separation of functions). In addition, the licensing requirements for asset managers are to be regulated in the Stock Exchange Act. It is hoped that the licensing requirements (particularly in respect of the separation of functions) will not be applied as strictly as for managers of collective investment schemes, thus also giving smaller institutions the chance of obtaining an asset management license. On 28 March 2012, the Federal Council tasked the Federal Department of Finance with drafting the corresponding legal frameworks. We are anticipating an implementation period of at least three to five years.

COMMENTS ON FINMA’S CURRENT APPROACH TO LICENSING Based on FINMA Newsletters 34 /35 “Asset Managers of Collective Investment Schemes,” FINMA’s current approach to licensing in terms of the authorization of asset managers under the CISA can be described as restrictive in that, of the ten completed licensing applications submitted in 2011, only four ultimately received a FINMA license according to this newsletter. In particular, the requirements stipulated by FINMA for an appropriate corporate organization, which are evidently also being applied in practice in the licensing process, are very hard for smaller institutions to meet. For instance, on the one hand FINMA’s requirements that no one person may sit on a company’s board of directors and its executive board force smaller institutions to expand their structures; on the other, small institutions also need to segregate their functions in personnel terms between operating areas (e.g. client support, asset management) and employees assigned the key controlling roles of ICS, risk management and compliance. For small asset managers, the additional costs associated with implementing such measures are often insurmountable obstacles to obtaining a license. Also worthy of mention is the average processing time for approved applications of 249 days as disclosed by FINMA. It is to be hoped that, in the medium term, FINMA will be able to significantly reduce what is a considerably long licensing process for asset managers compared to rival financial centers. To this end, on 23 March 2012 FINMA published guidelines on submitting applications as part of FINMA Newsletter 36. At the same time, FINMA produced an application chart in PDF format for asset manager applications, designed to simplify the application submission process and reduce FINMA’s processing time.


In its Newsletter 35, FINMA points out that asset managers need to decide quickly whether, in view of how long the process takes, they want to submit a licensing application now based on the current statutory provisions. As mentioned above, FINMA is assuming that asset managers who will require a license by mid-2013 under the AIFMD will have had to submit the application for their license by 30 June 2012 at the latest. This shows that FINMA does not check the content of a licensing application until it has been submitted in full.

POSSIBLE NEXT STEPS In view of the many regulatory challenges they face, asset managers would be well advised to analyze in detail the impact of the forthcoming amendments on their particular business model as soon as possible and to decide on suitable options for what to do next. While some asset managers will apply to FINMA for a license to manage collective investment schemes, others will request an exemption from the “Oberaufsichtskommission Berufliche Vorsorge” supervisory committee to manage pension fund assets, and others still will even have to consider giving up their business lines that are subject to licensing requirements. In addition, certain asset managers will undoubtedly have to restrict themselves to their most important core markets in light of developments in the field of tax.

CONCLUSION In regulatory terms, independent asset managers are facing what will probably be the most radical changes of the past few years. How significantly an asset manager will be affected by which regulations depends on his individual business model. It is therefore all the more important for them to address the consequences of the regulatory changes now to give themselves enough time to make any necessary modifications to their current business model.

Markus Schunk Partner, Head of Investment Management Financial Services +41 44 249 33 36 Pascal Sprenger Manager, Attorney-at-law, Legal Financial Services +41 44 249 45 26

With future developments likely to push up asset management costs overall, it is absolutely vital for asset managers that they have the necessary critical mass to provide their services efficiently.

IMPORTANT DATES 30 June 2012 For asset managers of non-UCITS funds regulated in the EU (e.g. Luxembourg SIFs). Applications for licenses required prior to the implementation of the AIFMD in mid-2013 must have been submitted to FINMA by this date. Mid-January 2013 The partial revision of CISA should enter into force on this date. There will be transition periods for requesting new licenses. 1 January 2014 Managers of occupational pension assets must have obtained a FINMA license or an exemption from the “Oberaufsichtskommission Berufliche Vorsorge” supervisory committee by 1 January 2014. From 2015–2018 onward All asset managers should be regulated by FINMA.


ESMA Final Report on AIFMD and CISA Partial Revision Developments and Implications by Dr. Armin Kühne and Benjamin Bloch

On 8 June 2011 the EU Directive for Alternative Investment Fund Managers (AIFM Directive or AIFMD) was passed. The next stage for the Directive is implementation at the European level in the context of the four-level Lamfalussy process, and afterwards transposition into national law by 2013. Finally, the effectiveness of the Directive will be reviewed in a number of aspects, which means that the definitive regime for Managers of Alternative Investment Funds (AIFM) will not be finalized until seven years after the AIFMD entered into force (i.e. in 2018). Status of the legislative work The first step in implementation at the European level consists of the so-called Level 2 Implementing Measures. In this context, the European Securities and Markets Authority (ESMA) was mandated to issue technical proposals to the implementing provisions. ESMA responded to this request in submitting a final report on 16 November 2011 (ESMA Final Report). ESMA provided its opinion on the Implementing Measures in the following areas:

• General provisions of the AIFMD, authorization of the AIFM and conditions for the exercise of activities of the AIFM (inter alia identification of the portfolios and valuation of the assets, the minimum capital requirements, conflicts of interest, risk management, liquidity management, organizational requirements, delegation of tasks of the AIFM); • Depositaries (appointment of the depositary, general requirements on regulation of the depositary in third countries, tasks of the depositary, liability of the depositary); • Leverage (inter alia level of the leverage and transparency, annual notification, interim publication duties on a ongoing basis during the year, provision of information, matters to be disclosed); • Supervision (in particular cooperation agreements with third countries). ESMA will now process the Level 3 Measures,1 while the European Commission is finalizing the Level 2 Measures.


Technical standards which should guarantee uniform application of the Directive.


Cf. article by Armin Kühne in the Swiss Financial Services Newsletter of January 2011, p. 15 et seq.


Individual aspects of the ESMA Final Report The AIFMD is an extremely complex, far-reaching and politically disputed regulation. Consequently the ESMA Final Report is extensive (approx. 400 pages including appendices). For this reason, this article addresses only certain aspects of the Final Report by providing a first assessment of those matters which will be of interest to third countries. These aspects are:

• Delegation of portfolio or risk management tasks to enterprises in third countries;

• Depositaries in third countries; • Requirements for cooperation agreements between

supervisory authorities which the AIFMD requires are pre-conditions for authorization for non-EU AIFM in various arrangements; • Determination of the reference Member State. The AIFMD itself sets out the constellation where the AIFMD is relevant for stakeholders in third countries.2

Delegation of portfolio or risk management tasks to enterprises in third countries The mandate to ESMA included, inter alia, the provision of suggestions on the transposition of Art. 20 AIFMD, which regulates the delegation of tasks of the AIFM. Pursuant to Art. 20 para. 1 AIFMD, there are a number of requirements for the delegation of portfolio or risk management tasks: existence of objective reasons (lit. a); sufficient resources, sufficiently good repute and experience of the third party in asset management (lit. b); authorization or registration of the third party for asset management and being subject to supervision (lit. c); no negative impact on the effectiveness of the supervision (lit. e); demonstration of the effectiveness of the supervision (lit. f). Delegation is also excluded in certain circumstances (no delegation to the depositary and its delegates, including companies which have a conflict of interests). The requirements of Art. 20 para. 1 lit. d AIFMD are additionally applicable to third-country relationships. Where there is a delegation of portfolio or risk management tasks to an enterprise in a third country, it must be ensured that the competent authorities of the originating Member State of the AIFM and the competent authorities for the enterprise “cooperate.” In contrast to other provisions of the AIFMD, Art. 20 AIFMD does not explicitly require the existence of cooperation agreements as a condition to authorisation. It also doesn’t require any express regulation and supervision in the third country which equate to the EU regulations.

Nonetheless, in the first draft of the technical proposals, ESMA had demanded the existence of an equivalent regulation and supervision. This was criticized in the consultation because there is no reference to an equivalence requirement in the text of the AIFMD (Art. 20 para. 1 lit. c AIFMD). The Securities and Markets Stakeholders Group3 aligned itself with the AIFMD, at which point ESMA finally relented and abandoned the requirement completely. ESMA, however – for systematic reasons, which in our opinion are contrary to the text of Art. 20 AIFMD cited above – insisted on the requirement for cooperation agreements in this area. In the course of the consultation it was also criticized that the cooperation agreements were not binding and did not represent international treaties (on the cooperation agreements in general see below). The text of the technical proposals was to be drafted the same way. ESMA changed the wording of the required entitlement of the competent supervisory authorities of the relevant EU Member States according to the agreements that are to be entered into (from “should entitle the authority to…” to “should allow the competent authorities to…”). ESMA concluded in the Final Report that the IOSCO4-Principles5 and the IOSCO Multilateral Memorandum of Understanding (MMoU)6 should form the basis of the cooperation agreements. These documents do not represent binding international treaties. The cooperation agreements should from now on be negotiated centrally by ESMA.


The Securities and Markets Stakeholders Group consists of 30 members from various industry sectors; it is consulted on the elaboration of technical standards. It was brought into being to facilitate the consultation process with ESMA.


International Organization of Securities Commissions.


IOSCO Technical Committee Principles for Supervisory Co-operation.


IOSCO MMoU concerning consultation and co-operation and the exchange of information of May 2002.


ESMA Final Report on AIFMD and CISA Partial Revision: Developments and Implications

These requirements on delegtion are implemented by the extension of the authorization obligation for asset managers in the CISA partial revision (see below). Depositaries in third countries The AIFMD imposes general requirements on depositaries (Art. 21 para. 1 to 5 AIFMD: there must be a written contract and the depositary must be a credit institute or another supervised company; the AIFM itself and the prime broker are excluded from acting as a depositary). On EU funds, depositaries in a third country are not permitted (Art. 21 para. 5 lit. a AIFMD); however, they are allowed for non-EU funds (see Art. 21 para. 5 lit. b AIFMD). Art. 21 para. 6 AIFMD regulates the additional requirements for depositaries in third countries. First, written agreements must exist between the supervisory authorities regarding cooperation and exchange of information (lit. a). In addition, it is necessary that the depositaries are subject to an “effective prudential regulation and supervision,” which have the “same effect” and which are “effectively enforced” (lit. b). Further, the third country may not be on the blacklist of uncooperative countries compiled by the working group “Financial Measures against Money Laundering and Financing of Terrorism” (lit. c). Further, it is important that the third country has concluded double taxation treaties which meet the standards of Art. 26 of the OECD Model Convention on avoidance of double taxation (lit. d). Finally, the depositary must be liable by contract to the AIF or the investors of the AIF and expressly acknowledge the delegation provisions (lit. e). ESMA was mandated, inter alia, to elaborate general criteria on the provisions for the effectiveness of the regulation and supervision in third countries. With regard to supervision, in its proposals ESMA requires an independent supervisory authority which provides continuing supervision (prudential supervision) as well as the existence of supervisory instruments which are “sufficiently dissuasive.” A material equality (in the sense of “same effect”) is required. In this way, ESMA modified its position. Under the draft of the technical proposals equivalence had been foreseen as the standard. Participants in the consultation demanded that by “same effect” a “similar level of protection” was to be understood, taking into account the proportionality principle. The individual criteria set out by ESMA would not need to be met cumulatively since an overall view should be relevant. ESMA gave no explicit opinion on the last point. The CISA partial revision implements and partly increases these requirements with respect to depositaries of collective capital investments (see below).


Cooperation agreements On various occasions the AIFMD has required the existence of cooperation agreements as a condition to authorization of third-country contacts (e.g. Art. 37 para. 7 lit. d AIFMD). In this context, ESMA requires written agreements which provide for: a) the exchange of information for supervisory purposes, b) the exchange of information for enforcement purposes, c) the possibility to obtain all information necessary to fulfill the tasks under the AIFMD, d) the possibility to conduct “on-site inspections” by the EU authorities or the local authorities accompanied by the EU authorities, e) the notifying of infringements inter alia of the EU regulations by third-country authorities. Initially criticism arose based on ESMA not differentiating between the exchange of information relating to monitoring of systemic risks and that for supervision. ESMA considers that monitoring of systemic risks justifies the same level of exchange of information as is required for prudential market supervision.

“The competitive position of Switzerland in the asset management business should not be weakened by a ‘Swiss Finish.’” Criticism was also made of the on-site inspections provided for in third countries. It was pointed out that local law regulates enforcement. ESMA did not deal with this question explicitly but noted that the IOSCO MMoU and the IOSCO Principles (which, as mentioned above, are not binding international treaties) should form the basis of the agreements. In the context of the CISA partial revision it should now be explicitly stipulated that FINMA permits foreign authorities corresponding tests in accordance with the mutual administrative assistance articles in the FINMA Act or, to the extent client data is concerned, performs these itself (Art. 141, 143 D-CISA). Determination of the Member State of reference The AIFMD stipulates a Member State of reference in accordance with whose AIFMD implementing provisions a foreign AIFM will be approved or registered (e.g. see Art. 37 para. 4 AIFMD). An important case is a non-EU AIFM wanting to market one or more non-EU AIFs in different EU Member States. This case is not absolutely clear in the text of the AIFMD, as the Securities and Markets Stakeholders Group commented. ESMA proposes that in such a case the country that should be the reference Member State is the one in which the most effective marketing occurs. The most effective marketing should be measured under the following criteria: the country a) in which the promotion by the AIFM (or its promoter) occurs, b) in which the most targeted investors have their domicile, c) in whose official language the offer documentation is presented, d) in which marketing is most frequently and forcefully observed.

Outlook of the partial revision of the CISA The partial revision of the law on collective investment schemes (CISA) should be viewed against the background of the enactment of the AIFMD. The provisions relating to management, custodianship and operation of collective investment schemes are to be adapted to the AIFMD in the course of the CISA partial revision. In this context, it is anticipated that the licensing duty for asset managers of collective investment schemes shall extend to all asset managers (also to Swiss and foreign asset managers of funds with an offshore domicile). In addition, the requirements on depositaries should be increased and the conditions on distribution to qualified investors and public investors are to be strengthened. As a result, access is to be safeguarded for Swiss financial services providers and their products to the European markets (see Art. 13, 18 D-CISA). The goals of the CISA partial revision, namely to make the necessary modifications to the AIFMD to ensure access to the European financial markets and the closing of certain regulatory loopholes, is in principle to be welcomed. Above all it should be noted that the CISA partial revision was practically exclusively triggered by the enactment of the AIFMD. In this light, it should be possible, by making the necessary modifications to the previous conditions (“Swiss Finish”), to avoid a weakening of the competitive position of Switzerland in the enormously important asset management business.

CONCLUSION The focus of the AIFMD, to ensure market entry also for market participants from third countries, provides opportunities for Swiss asset managers. The devil, as always, is in the detail; and it will depend very much on whether obstacles are raised created by “technical” questions. It remains to be hoped that the definitive version of the partial revision of the CISA – and, in particular, the detailed provisions at the level of the CISO – will waive a “Swiss Finish” and in contrast introduce several adaptations into the Act which, while ensuring an appropriate protection of investors, will strengthen the competitiveness of the Swiss fund market.

Dr. Armin Kühne Partner, Attorney-at-law, Legal Financial Services +41 44 249 22 71 Benjamin Bloch Manager, Attorney-at-Law, Legal Financial Services +41 44 249 31 54

In this connection, it should be mentioned that Swiss asset managers are also covered by the authorization obligations which, according to AIFMD and the UCITS Directive, have no relevant point of contact with EU Member States. In comparison to the first draft from 6 July 2011, the new CISA draft (ratified by Parliament on 2 March 2012) introduces waiver opportunities into a number of points and thereby moderates the “Swiss Finish.”With respect to implementing the relevant waivers, however, frequent reference is made to the Ordinance on Collective Investment Schemes CISO (“the Federal Council can”, see Art. 18 para. 3 D-CISA) or to the practice of FINMA (“the FINMA can,”see Art. 18 para. 4 D-CISA). In order to prevent a “Swiss Finish” it is decisive how the new CISA requirements are implemented at an ordinance level and the extent to which FINMA makes use of the waiver provisions in practice. Experience shows that such “can” provisions have thus far only been restrictively implemented and in particular, FINMA only very rarely makes use of the waiver provisions in practice. The numerous proposals for measures to promote the Swiss fund market submitted in the course of the consultation remain unfortunately broadly unused. Requirements on Swiss financial services providers The revised CISA provisions (planned enactment in summer 2012 with entry into force from the beginning of 2013) must be implemented by Swiss financial services providers within two years (see Art. 158a ff. D-CISA). It is to be expected that these conditions will be interpreted in light of the AIFMD.


Are We Facing an Impending Wave of Consolidation in the Swiss Independent Asset Manager Industry? by Philipp Arnet and Jan Wetter

Highly-fragmented Swiss independent asset management market The Swiss independent asset management market in the past has enjoyed high growth rates. During the 1980s there were around 100 independent asset management firms (IAMs); that number has risen to between 2,200 and 3,600 today.1 SwissBanking estimates assets under management (AuM) of Swiss independent asset managers to be around CHF 600 billion, representing a market share of 11 % of total assets managed in Switzerland. Advantageous macroeconomic conditions and the excellent reputation of the Swiss financial market drove this growth by attracting, in particular, wealthy international clients. Even the financial crisis – until now – has not changed this trend fundamentally. Although investment losses have led to reduced revenues, the competitive position of IAMs in comparison to private banks has improved because of their independence.

Figure 1: Active SAAM members, by year established3

35.0% 30.0%


20.0% 15.0%






5.0% 0.0% before 86






Figure 2: Number of employees per SAAM member4

> 10 employees 7.4%

Figure 1 indicates over 70 % of active SAAM (Swiss Association of Asset Managers) members were established after 1995, mostly by former private bankers.

0–1 employees 20.9%

6 –10 employees 16.6%

2 employees 20.4%

5 employees 9.0%

The Swiss independent asset manager market is highly fragmented with a large number of very small firms and a few large ones. The average SAAM member in 2009 employed three staff (see Figure 2) and managed AuM of CHF 85 million.




4 employees 10.1%

3 employees 15.6%


Source: Swiss Association of Asset Managers SAAM (2011). 25 years of the Swiss Association of Asset Managers – anniversary magazine.


Source: SwissBanking (2011). The Swiss wealth management business – status and developing trends. Estimate for 2009.


Swiss Association of Asset Managers SAAM (2011).


Swiss Association of Asset Managers SAAM (2011).

Market consolidation is necessary Although we are again seeing private bankers taking their chance to become independent, we expect a consolidation of the number of independent asset managers over the coming years. The main drivers of this impending consolidation are set out below: 1. International fight against tax evasion: An essential portion of the assets managed by Swiss independent asset managers belong to foreign private clients. The gradual erosion of the Swiss bank secrecy and the actions of many countries and international organizations (OECD, G-20) to combat tax evasion will continue to lead to an outflow of money from Switzerland. The decline in AuM will negatively impact the profitability of Swiss independent asset managers. Independent wealth managers (especially those in Ticino and the French-speaking part of Switzerland) may be more impacted than even private banks as they manage a higher proportion of funds from foreign clients (mainly Europeans).5 With the repatriation of client funds and the general trend from offshore to onshore private wealth management, Swiss independent asset managers may face considerable challenges as they often do not have offices abroad and increasing cross-border regulations limit offshore business. Given these challenges, it is not surprising that the Swiss independent asset management industry is rather pessimistic about its future. According to a study conducted by SAAM, 50 % of independent asset managers surveyed believe the “golden days” are over.6 2. Regulatory change: Changes in the regulatory environment such as MiFID (2) and FATCA will continuously increase pressure on the independent asset management industry and will significantly increase their cost base. From the current discussions on MiFID (2), it is still unclear whether wealth managers from countries outside the EU, like Switzerland, will be granted access to EU markets. In comparison to Swiss private banks, independent asset managers are much smaller, nationally established wealth managers and, therefore, are more limited in their ability to react to fund repatriation without significantly changing their business model. It is likely that, given the pressure from the EU, Switzerland will change its supervision approach over independent managers from one of self-regulation to prudential supervision. Such a change would require more complex operating systems and lead to higher administrative expenses and capital requirements.

3. Increasing customer demands and power: The collapse of the investment bank Lehman Brothers and the Madoff fraud caused clients to become more riskaverse and critical towards investment advice. It remains to be seen how this will impact client asset allocation going forward. Swiss asset managers traditionally managed a large portion of high-margin discretionary mandates. It is estimated that 80 % of Swiss independent asset manager revenue was generated from such mandates.7 The critical attitude of clients has also been reflected in an increasing number of court claims for damages. Given the strengthening of consumer protection through greater regulation, it can be assumed that legal costs will increase for independent asset managers. Of importance for Swiss independent asset managers is the Lugano Convention, which redefines the competent jurisdiction between the EU and Switzerland in trade and civil disputes.8 Foreign non-professional clients may litigate against Swiss independent managers in their home jurisdictions while European courts may, for example, apply MiFID (2) provisions which are not currently required of Swiss independent managers. This may lead to a further shift of power in favor of foreign clients. Further, increased pressure has caused retrocession payments to be clearly disclosed or returned to the client.9 Overall, increasing customer demands and power will lead to a rising cost base and a falling revenue base.

“Structural change will drive consolidation in the Swiss independent wealth management market.” 4. Increasing pressure from private banks: During the financial crisis, larger banks rediscovered the revenue potential from independent asset managers and, accordingly, set up dedicated internal units to serve them. However, the revenue benefits have become fragile and may be threatened by the profit pressures on Swiss private banks. Eroding profitability is forcing private banks to optimize their processes and seek new sources of revenue. Among other initiatives, the relationships with independent asset managers is being re-evaluated by banks, and some banks are lobbying for FINMA to oversee the activities of independent asset managers. As banks finally bear the risk of the independent asset managers’ clients, the latter are being forced to comply with banks’ internal compliance guidelines which will increase costs.


According to Bührer (2006), more than 90 % of the assets managed in Ticino are from foreign clients.


Source: Swiss Association of Asset Managers SAAM (2011). 25 years of the Swiss Association of Asset Managers – anniversary magazine.


Bührer (2006). Independent Asset Managers in Switzerland. PhD thesis, University of Zurich.


Since the beginning of 2011, this also covers financial services.


See Koller, Ch. (2011). Retrocession issues – competent federal court treats institutional investors as customers. In: NZZ, 28 November 2011. According to Bührer (2006), retrocessions generate 38 % of total revenue (52 % management fees, 10 % other revenue).


Are We Facing an Impending Wave of Consolidation in the Swiss Independent Asset Manager Industry?

Outlook We are convinced that the current challenges in Swiss private banking are an indication of the future challenges that will be faced by independent asset managers. Regulatory change, increasing customer demands and a rising cost base will lead to a shift in the minimum size of the independent asset management firm.

Shareholder value

Figure 3: Exogenous structural changes and possible adjustment strategies

Given the average size of independent asset managers10 and the severe fragmentation of the market, increased M&A activity among independent asset managers can be expected. Due to their inherent risks, acquisition is just one solution among many. It is also expected there will be more alliances in the future in the form of networks and classical outsourcing. Synergies may be realized by establishing common platforms for risk management and control as well as legal and compliance. It should not be excluded that the only strategic option available to small, weakly focused asset managers may be an orderly exit from the market.



The pressure on Swiss wealth managers will continue to rise in the near future. Due to generally increasing fixed costs, the critical firm size will shift, which in turn will lead to a consolidation of a highly fragmented industry. It is recommended for potential buyers and sellers to initiate strategic analysis and M&A processes as early as possible.


1 Future

Firm size


Structural changes (exogenous): inter alia regulatory changes, increasing customer requirements and risks, decreasing profitability of Swiss private banks


Potential adaption (endogenous): strategic analysis and implementation of adequate M&A strategies

Obviously, size should not of itself be the only parameter considered since there is a trade-off between firm size and customer loyalty. The agility and client focus of the independent asset manager may well be differentiating factors in comparison to slower-moving banks. Nevertheless, the aforementioned revenue and cost pressures will force many independent asset managers to adapt their business models through strategic acquisitions or disposals of their non-core assets, thus better matching their individual businesses and customer segments to the new competitive environment. “Best practice models” in private banking demonstrate that it is crucial to initiate strategic analyses and implement potential solutions, such as M&A, as soon as possible. Experience tells us that unconventional transactions may also need to be considered. Besides industry consolidation (horizontal integration), it will be interesting to watch transactions between private banks and independent asset managers (vertical integration).

Philipp Arnet Partner, M&A Financial Services +41 44 249 32 71 Jan Wetter Manager, Transaction Services Financial Services +41 44 249 26 95

Further, the majority of independent wealth managers are confronted by issues around succession planning, which are rarely solved within the firm itself.


The VSV assumes an average gross margin of 80 basis points; in terms of assets under management of CHF 85 million (median value), this represents CHF 680,000 gross income.


The Future of the Swiss Investment Foundation by Dr. Armin K端hne


The Future of the Swiss Investment Foundation

Swiss investment foundations comprise a special category and standardized form of a joint capital investment that was, until now, not independently regulated by law. The investment foundation is specifically excluded (Art. 2 para. 2 lit. a CISA) from the scope of the Collective Investment Schemes Act (CISA). It has developed into a separate concept in practice and obtained amazing economic significance following 40 years of traditions. Approximately 40 investment foundations manage assets of Swiss occupational pension schemes in the order of CHF 90 billion.

Until now, investment foundations have been formed as foundations pursuant to Art. 80 et seq. of the Swiss Civil Code (CC). However, many characteristics of the investment foundation are foreign to foundation law and in some cases even conflict with the legal concept of the foundation (e.g. shareholder rights of the investor or repayment of the transferred assets at all times). In order to legally qualify the investment foundations, doctrine assumes a double organization consisting of a foundation pursuant to the Swiss Civil Code and an investment club in the form of a simple partnership in accordance with Art. 530 et seq. of the Code of Obligations (CO). This artificial legal construct was linked with various uncertainties. For example, it was not clear whether, in the case of an investment foundation with several investment groups, the risk arose of joint liability of a single investor for other investors or for the investment foundation.

Legal Basis The first-time codification of the investment foundation is based on the following legal basis:

• Art. 53g thru Art. 53k of the Federal Act on Old Age, Survivors and Disability Insurance (BVG)

• Federal Ordinance on Investment Foundations (ASV) • Reference to the Federal Ordinance on Supervision in

Occupational Insurance, BVV 1 (authorization conditions, founding documents) • Reference to the Federal Ordinance on Old Age, Survivors and Invalidity Insurance BVV 2 (provisions concerning investments, integrity and loyalty of the responsible persons, accounting, valuation, transparency) • For the convening and carrying out of the investors’ meeting, Art. 699 et seq. CO applies analogously (Art. 3 para. 1 ASV) • Individual references to the Ordinance on Collective Investment Schemes (CISO) and the Ordinance of FINMA on Collective Investment Schemes (CISO-FINMA) • Secondarily, the provisions on foundation according to Art. 80 thru Art. 89bis Swiss Civil Code (Art. 53g para. 2 BVG) Characteristic Features of an Investment Foundation Investment foundations are structures that serve occupational pension schemes (Art. 53g para. 2 BVG). They function as facilities in the form a foundation pursuant to the Swiss Civil Code with the purpose of joint investment and management of pension fund assets (Art. 53g para. 1 BVG). The circle of investors of the investment foundation is limited to tax-free pension funds of the private and public law, vested benefits foundations, financial foundations, bank foundations within the context of the 3rd Pillar, voluntary employer sponsored welfare funds as well as collective investment schemes provided the circle of investors is limited to the aforementioned structures (Art. 1 ASV). Investment foundations are often formed according to the bottom-up principle: several pension funds join together within the framework of an organized self-help group in order to manage their assets jointly and reduce costs in the process. In contrast to investment funds under the Collective Investment Schemes Act, where providers of collective investment schemes initiate the schemes’ formation, as a rule, investment foundations are themselves initiated by the pension funds. In addition, an investment foundation, as opposed to investment funds, maintains cooperative elements that are expressed in part through broadly defined participation rights of the investors. Such participation rights may relate to investment decisions. In contrast to this, third party management is the core of investment funds definition,


which alone justifies the Collective Investment Schemes Act’s provisions on protection. Equivalent stringent requirements with respect to the guarantee of investor protection would neither be necessary nor justified as they are in the case of investment funds. In this connection, the principle of “same business, same rules” does not apply, but rather “not the same business” and thus also “not the same rules” should. Moreover, as regards an appropriate level of protection for investors, it must be noted that pension funds are institutes which, by reason of the regulations applicable to occupational pensions, are themselves regulated. Therefore, in comparison to public investors, their investors have a significantly lower need for protection. Legal Security through Codification The investor rights of investment foundations are secure in a positive legal sense as a result of the new legal provisions. The independent creation in practice will be transferred into positive law and the double organization of a foundation and a simple partnership as a legal structure will be dropped. The provision concerning liability in Art. 53j BVG is extremely important in this context, whereupon the liability of the investment foundation is limited, for the commitments of an investment group, to the investment group’s assets; each investment group is only liable for its own commitments and the liability of the investor is excluded. Furthermore, Art. 53i para. 4 BVG explicitly states that goods and rights that belong to an investor group are to be segregated in favor of their investors. Until now, investment foundations with several investor groups defined the segregation of the individual groups within the internal regulations. However, there has never been certainty on whether the internally regulated solution would actually prevail in the case of a bankruptcy. In addition, important provisions on fiduciary duties are explicitly defined and these duties maintain significant weight. Other points which should also be mentioned are the principle of equal treatment (Art. 2 para. 3 and Art. 43 para. 1 ASV), prevention of conflicts of interest, legal undertakings with related parties, own account transactions, surrendering of pecuniary advantage, disclosure duties, etc. (Art. 8 ASV, Art. 48h et seq. BVV 2). Role of the Supervisory Authority Although investment foundations were previously supervised by the Federal Office for Social Insurance (BSV) or the responsible cantonal authorities, this duty now falls in accordance with Art. 64a para. 2 BVG to the Supervisory Commission. Because a multitude of regulations of the ASV contain discretionary provisions and so that the supervisory authority is allowed significant discretionary powers, the practice of the Supervisory Commission acquires fundamental importance. This provides the advantage of allowing for certain flexibility.

In this context, however, the references in the ASV to the CISO and the CISO-FINMA are “dangerous” because there is a risk that the supervisory authority might orientate itself too strongly to the exceedingly strict regulations and restrictive interpretations based on the practices of the Swiss Financial Market Supervisory Authority (FINMA). In this connection, it is very important that the differences are taken into account between investment foundations and investment funds. The Supervisory Commission is responsible for the licensing examination as part of the formation of an investment foundation. The corresponding requirements derive from Art. 21 in conjunction with Art. 12f BVV 1. In addition, amending the statutes and foundation regulations as well as the issuing and amending of investment guidelines for investment groups in the area of alternative investments and from foreign properties must be pretested by the supervisory authority (Art. 17 para. 1 lit. c ASV). Because the formation and the revocation of investor groups can be delegated to the foundation board (Art. 13 para. 3 lit. h ASV), no product approval is required for investment foundations in contrast to investment funds. Organization a) Investors‘ Meeting The investors‘ meeting is the upper body of the investment foundation (Art. 53h para. 1 BVG). This rule deviates from the organization of a foundation according to the Swiss Civil Code where the foundation board serves as the upper body (Art. 83a CC). For the convening and conducting of the investors’ meeting, Art. 3 para. 1 ASV refers to the stock corporation laws on the general meeting. The non-transferable duties of the investors’ meeting are listed in Art. 4 ASV and include, for example, resolutions on amendments to the statutes and the foundation regulations, the election of the foundation board and auditors, approval of the annual financial statement, etc. b) Foundation Board The foundation board serves as the managing body of the investment foundation (Art. 53h para. 2 BVG). It is responsible for all duties that are not assigned to the investors’ meeting via the law or the foundation statutes (Art. 6 para. 1 ASV). According to Art. 53h para. 2 BVG, the foundation board can delegate the business management to third parties with exception of the duties that are directly linked with the upper management of the investment foundation. In order to guarantee a level of independence of the foundation board in accordance with Art. 8 para. 2 ASV, a maximum of onethird of the members of the foundation board may be entrusted with operational duties of the investment foundation (management, administration, asset management). c) Auditors The investment foundation must appoint an auditor for which the provisions for pension funds are applicable analogously in accordance with Art. 52c BVG. In addition, the auditors of investment foundations have other duties, for instance in connection with contributions in kind.


The Future of the Swiss Investment Foundation

Foundation Assets The overall assets of the investment foundation include the core assets and the investment assets (Art. 53i BVG). The core assets are formed through the initial endowment assets that must amount to at least CHF 100,000 and which must be maintained at this level (Art. 22 BVV 1 in conjunction with Art. 22 para. 2 ASV). The investment assets comprise the monies paid-in by the investors for the purpose of investing (Art. 53i para. 2 BVG). It is divided among one or more investor groups that are financially separate and are economically independent from one another. One investor group consists of one or more investors who hold no-par value shares of this investor group (Art. 53i para. 3 BVG). Following long discussion in the Federal Parliament, the creation of “singleinvestor-investment groups” is permitted.

The investment possibilities should not be limited by bans but rather the supervisory framework should ensure that, on the basis of organizational requirements and transparency provisions, the necessary framework conditions will be established and thus that the investor protection necessary for pension schemes is guaranteed. However, a multitude of suggestions for improvement from the investment foundations were adopted as a result of the consultation phase for the ASV.

Contributions in Kind Principally, the equivalent value of the issuing price of shares is to be produced in cash. Contributions in kind are, however, permitted provided this is foreseen in the statutes, the contributions in kind are consistent with the investment strategy and the interests of the present investors are not affected by the contributions in kind (Art. 20 ASV). In addition, the contribution objects – with the exception of private equity investments – must be traded on a stock exchange or another regulated market that is open to the public. In light of these requirements, the question that arises is whether contributions in kind in real estate groups are still permitted. Because Art. 41 para. 4 ASV (which contains a provision on the valuation of real estate contributions in kind) and Art. 10 para. 2 ASV (which regulates the audit of real estate contributions in kind by auditors) implicitly assume that real estate contributions in kind are permissible, contributions in kind in real estate investment groups should also continue to be permissible in the future. This is of increased significance because investment foundations represent an important alternative to launching of real estate funds for qualified investors for which, on the basis of the restrictive practice of FINMA, the possibility of contributions in kind is strongly limited due to the ban on acquisitions and assignments in accordance with Art. 63 para. 2 CISA. Investment Provisions In Art. 26 et seq., the ASV contains a multitude of investment provisions. The investment provisions for benefit schemes pursuant to BVV 2 are applicable subsidiarily. The supplementary provisions in the ASV represent in principle a transfer of the previous practice of the BSV in the positive law. However, the industry has strongly criticized them because in the opinion of many industry representatives, a general reference to BVV 2 would have been sufficient since the pension schemes, as investors of the investment foundation, must already observe the investment provisions according to BVV 2 and the regulations thus lead to dual supervision as a consequence. In reality, this system of dual supervision is neither necessary nor purposeful.


Integrity and Loyalty of the Responsible Persons With respect to the integrity and loyalty of the responsible persons, the same provisions apply for investment foundations as for pension schemes and other occupational benefits (Art. 7 para. 1 ASV). In accordance with Art. 51b BVG, the persons entrusted with the management, administration or asset management must maintain a good reputation and ensure that business will be conducted in a proper manner. The responsible persons are subject to a fiduciary due diligence, must protect the investor interests and must see to it that conflicts of interests are avoided. The corresponding requirements are substantiated in Art. 48f thru Art. 48l BVV 2.

Fulfillment of the requirements for guaranteeing proper business activities by the responsible persons must be evidenced as a licensing condition within the framework of the approval process for formation of the investment foundation (Art. 12 para. 3 and Art. 21 BVV 1). In the case of changes, a reporting requirement does exist, but there is no approval requirement (Art. 7 para. 1 ASV in conjunction with Art. 48g para. 2 BVV 2). As is the case for the persons charged with the business management or the administration, the persons entrusted with the asset management must maintain a good reputation and ensure that business will be conducted in a proper manner. The above statements also apply thus for the persons entrusted with the asset management of the investment foundation, independent of whether the asset management takes place internally or is delegated to an external person (Art. 48f para. 2 BVV 2 in conjunction with Art. 51b para. 1 BVG). If the asset management is delegated to an external party, then the external party, beginning with the coming into force of Art. 48f Para. 3 of the revised BVV 2 on 1 January 2014, must be an institute supervised by FINMA or a foreign institute with equivalent supervision. Nevertheless, the Supervisory Commission still maintains the possibility to declare other persons as qualified (Art. 48f para. 4 revised BVV 2). Significant Control Functions The foundation board is responsible for ensuring that the investment foundation has an adequate operational organization (Art. 6 para. 2 ASV). In modern supervisory law (as is also the case of the licensees in accordance with Art. 13 para. 2 CISA), the significant control functions (ICS, Risk Management and Compliance) for the requirements on an appropriate organization regularly play a central role. For the regulation of the investment foundations, this is not the case. Art. 7 para. 3 ASV only foresees that the foundation board must provide for “sufficient monitoring of the persons entrusted with the duties” and must take into account the “independence of the monitoring body.” In addition, Art. 10 ASV, which defines the duties of the auditors, refers to Art. 52c BVG and thus indirectly to Art. 35 para. 1 BVV 2, whereby the auditors must confirm the existence “of internal controls adequate according to size and complexity.” This provision also applies for even the smallest pension funds and contains in particular no duty for the pension fund to introduce a formal ICS. Specific provisions do not exist for investment foundations that often represent large benefit schemes. However, in practice, investment foundations as a general rule will not be able to forego a formal ICS. Although a corresponding provision is missing, implementation of a risk management process is recommended. This step leads to consideration of the possible risks and opportunities.

Effective Date and Transitional Periods The provisions on the effective date and the transitional provisions concerning the new, mandatory laws for investment foundations are complex and unclear due to the linkage of various laws and ordinances as well as the staggering of the subsections of the BVG structural reform. It is clear that the investment foundations will have to make amendments to their foundation statutes with respect to the ASV by 31 December 2013 (Art. 44 ASV). However, the ASV already entered into force on 1 January 2012 and refers to numerous provisions of the BVV 1 (effective date 1 January 2012) and the BVV 2 (effective date: provisions on integrity and loyalty of responsible persons on 1 August 2011; provisions on external asset managers on 1 January 2014; rest on 1 January 2012). Because there only exists a transitional period for the amendments of the foundation statutes and foundation regulations, it is believed that, for example, a substantive advance effect for the provisions on the integrity and loyalty of responsible persons applies to the responsible persons since the coming into force of the ASV (1 January 2012).

CONCLUSION The initial codification of the Swiss investment foundation is an important achievement of the BVG structural reform. The legal rules make it clear that the investment foundation has a right to exist as an independent legal form and establishes legal security in many respects. Based on the previous practice of the BSV, the excessively strict rules of the investment provisions for investment foundations are understandable, but not entirely satisfactory. These strong provisions are not necessary because the pension schemes are themselves regulated as investors and they must comply with the investment provisions of the BVV 2. A general reference to the provisions of the BVV 2 would have been sufficient, in principle. However, the central control functions (ICS, Risk Management and Compliance), which are necessary for a modern supervision, are not well regulated. Due to the extensive transformation of the previous practices of the BSV within the positive law, only moderate changes will have to be made to the policies of the majority investment foundations by the 31 December 2013 expiration date. Ultimately, the investment foundation is and remains an attractive investment vehicle that is tailored to the needs of the pension funds.

Dr. Armin Kühne Partner, Attorney-at-law, Legal Financial Services +41 44 249 22 71


Unexpected Tax Pitfalls When Investing in U.S. Securities through Investment Funds by Grégoire Winckler and Jason Zücker

Stefan Müller is 68 years old, married with two children. He is looking to receive an attractive after-tax yield on his investment in American securities made through mutual funds. Stefan Müller is familiar with the taxation of investments in funds, since he has had units in mutual funds in his portfolio for years. He knows that a mutual fund is regarded as transparent for income tax purposes and that the income realized by the fund is not taxed at the level of the fund, but must be declared as taxable income in Switzerland by investors like himself. In order to receive the highest possible share of the income generated by the funds in which he invests, Stefan Müller sees as best as possible to it that there are no withholding taxes on the distributions from the funds or on the income from securities held by the funds. Based on reports in the media and on a letter received from his bank, Stefan Müller would like to make sure that he will not suddenly be subject to inheritance tax in the USA because of his mutual fund investment in the USA, although he has never lived in the USA and has neither U.S. citizenship nor a U.S. green card. The most important tax aspects for Stefan Müller are explained below. Factors such as, for example, the costs charged by the fund (which Stefan Müller usually takes into consideration when deciding on the best choice of fund) will not be considered here for reasons of simplification.


The USA, and (from the Swiss point of view) its rather idiosyncratic tax practices, are regularly in the headlines. This is also the case when Swiss private individuals make an investment in U.S. securities through mutual funds, where certain hidden tax pitfalls need to be taken into consideration when deciding on the investment.

The phantom of the American inheritance tax The introduction of a federal inheritance tax is currently being discussed in Switzerland. Like most Swiss private investors, Stefan Müller had not realized that inheritance tax could theoretically be due today, if the decedent had held units in an American fund or other U.S. securities in his portfolio. The tax is not however levied by the Swiss tax authority, but by the American tax authority. The reason for this peculiar rule is in the American tax law, which provides for a federal estate tax (at currently 35 %) on U.S. securities, regardless of whether the deceased was a U.S. person or not. It is even possible that the Swiss bank, which is the custodian of Stefan Müller‘s U.S. securities, might be obliged to notify the American tax authority of the tax, and potentially even to levy it. Even the Convention between the Swiss Confederation and the United States of America for the Avoidance of Double Taxation with respect to Taxes on Inheritances does not afford protection against the U.S. estate tax. This double tax convention dates from the year 1951 and, by contrast with the modern double tax treaties

such as that between the USA and Germany, contains no clauses which exempt the U.S. securities held by non-U.S. persons living in Switzerland from U.S. estate tax. In spite of this merciless tax convention, in practice Stefan Müller’s estate would probably be spared a U.S. estate tax charge. Until now, the American tax authority did not try to enforce these estate tax rules outside the USA. In view of the American burden of debt and the resulting interest of the USA in tapping new sources of tax revenue, the possibility cannot be excluded that the implementation of American estate tax law outside the USA could be the next hot topic. Alternative solutions with respect to American estate tax What possibilities are there for Stefan Müller to invest in American securities through mutual funds without being affected by the problem of the U.S. estate tax? One obvious alternative would be to invest in American securities through Swiss funds or other non-U.S. funds. Since these funds do not qualify as U.S. securities, they are not liable to U.S. estate tax, even if the fund invests exclusively in American securities. Is this apparently simple solution the answer for Stefan Müller when it comes to making an investment in American securities through funds? As mentioned at the beginning of this article, Stefan Müller wants to realize a high after-tax yield, taking into consideration any withholding taxes due on the income from the fund and on the securities held by the fund. Can this object be achieved if the investment is made through non-U.S. funds? The following example gives the answer to this question. Comparison of the yield of U.S. and non-U.S. funds after deduction of any withholding taxes Stefan Müller wishes to invest CHF 100,000 in funds with American securities. He prefers funds which distribute their income on an annual basis. In the case of the non-U.S. funds, which are preferred from the point of view of the U.S. estate tax, the income from the U.S. securities held by the funds is subject to U.S. withholding tax of 30 %. On a distribution of CHF 2,000 Stefan Müller thus receives CHF 1,400 (70 %) of the realized income. A Swiss fund would in addition have to deduct Swiss withholding tax of 35 %. This last tax can be claimed back by Stefan Müller in his tax return. However, since the deducted tax is not at his disposal in the meantime, this leads to a cash flow disadvantage.

CONCLUSION If Stefan Müller chooses an investment in American securities through a non-U.S. fund – on first sight the more advantageous investment – he has to accept a lower after-tax yield than with a comparable investment through a U.S. fund. This loss is the price to be paid for having certainty that no U.S. estate tax would be payable in the case of his decease. As Stefan Müller enjoys good health and does not intend to die in the near future, he is not prepared to accept such a loss in connection with his after-tax yield. Additionally, he has heard that a new double tax convention regarding inheritance taxes is being negotiated between Switzerland and the USA, and that this should eliminate the U.S. estate tax problems in respect of U.S. securities held by non-U.S. persons who live in Switzerland. He therefore finally decides in favor of an investment in a U.S. fund which holds American securities.

Grégoire Winckler Partner, Tax Financial Services +41 44 249 47 39 Jason Zücker Senior Manager, Tax Financial Services +41 44 249 20 71

By contrast with a non-U.S. fund, a U.S. fund receives the full 100% of the income from the American securities without any deduction of withholding tax. When the income is distributed by the U.S. fund to Stefan Müller, a 15 % U.S. withholding tax is levied under the double tax treaty between the USA and Switzerland. On a distribution of CHF 2,000 Stefan Müller receives CHF 1,700 (85 %), which is a correspondingly higher share of the realized income by comparison with the investment through a non-U.S. fund. Further, he can apply in his tax return to get a tax credit for the 15 % U.S. withholding tax of CHF 300 against his Swiss income tax liability.


Constant Change – In Group Composition as Well? Impact of the New IFRS 10 on Fund Managers by Patricia Bielmann and Ellen Sevray

A Chinese proverb illustrates how change is often handled: When the wind of change blows, some people build up walls and others build windmills. IFRS 10, Consolidated Financial Statements, mandatorily effective from 1 January 2013, brings change in respect of when an investment must be consolidated. In addition there will be new disclosure requirements, not only for consolidated but also for certain unconsolidated entities. What impact will this wind of change have on the asset management industry? Are walls or are windmills the method of choice? New definition of control The new definition of control might impact whether managed funds must be consolidated. This can lead to significantly increased balance sheet totals and, from a fund manager’s point of view, to an inappropriate presentation of the accounts. According to the new single definition of control, having the majority of voting rights or bearing the majority of risks and rewards stemming from an investment are no longer the sole determining factors of control. An investor controls an investment if:

• it has the current ability to direct those activities that have significant impact on the investee’s result (decisionmaking power); • it has exposure to variability in the investee’s returns; and • there is a link between decision-making power and returns. These points are particularly important when a fund manager is acting in a dual role, being invested in the fund and acting in the role of the fund’s decision maker.


Principal or agent? A pivotal question is whether the fund manager acts as principal or as an agent. A principal uses the decisionmaking power to generate returns for itself. An agent, on the other hand, uses the delegated decision-making power for the benefit of other parties. Thus, if a fund manager acts as principal there is a link between the decision-making power and the returns resulting from this power – a principal is therefore required to consolidate the investment. In contrast, an agent doesn’t consolidate the investment because the link between the decision-making power and returns is missing. IFRS 10 gives one clear example of when a decision maker is acting as agent: this is the case if a single party holds substantive right to remove the decision maker without cause (so-called “kick-out rights”). However, when the facts and circumstances are not that clear-cut, the assessment becomes more judgmental and the following criteria must be considered:

• Market consistency of fund manger’s remuneration • Scope of decision-making authority • Rights held by other parties • Other interests held (i.e. remuneration for management services and other interests such as direct investment in the fund)

The assessment of whether a fund manager acts as principal or as an agent requires a comprehensive analysis of the underlying facts and circumstances. The principles-based approach of IFRS 10 leaves room for judgment – there are no clear-cut boundaries or bright numerical lines given by the standard.

Specific issues in assessing control over funds Specific aspects might play a role in assessing control over a fund, such as:

• Provision of seed money • Performance guarantees given by the fund manager • Guarantees for liquidity of shares in the fund (fund man-

New processes and system changes might become necessary to include new entities in consolidated financial statements. Furthermore, events and circumstances need to be identified that could impact the initial consolidation decision. This is necessary because IFRS 10 requires an ongoing consolidation assessment. It is therefore not sufficient to assess the consolidation scope once and for all.

ager takes over shares in the fund)

• Leverage factors in respect of performance fees The control assessment encompasses a high degree of complexity. The comprehensive assessment of all facts and circumstances is of paramount importance as the new standard deliberately neither gives bright lines nor establishes a hierarchy of the criteria to be considered. Management’s judgment becomes therefore a key factor in the control assessment.

”The asset management industry will be particularly impacted by the new consolidation principles. For the first time there is specific guidance on principal versus agent relationships.“ Impacts and next steps The asset management industry will be particularly impacted by the new consolidation principles. Until now there was no explicit guidance (i.e. distinction of principal-agent relationships) in IFRS. Practice has evolved over time and must now be compared to the guidance included in the standard to ensure conformity with the new requirements. While IFRS 10 leaves some room for judgement management’s assumptions need to be carefully considered in light of the principles given in the new consolidation standard. These assumptions must also be disclosed accordingly. It is expected that an industry practice will develop in due course. All funds must be re-evaluated for consolidation. This applies to those funds that are already consolidated as well as those not consolidated under the current IFRS guidance. The potentially high workload resulting from this re-assessment can be lowered by creating fund categories for those funds sharing the same specifics. There might be consequential issues to be addressed in case the consolidation assessment results in changes of the group’s composition: for example, regulatory capital and key financial ratios might be impacted. A further example for an area that might be affected is the compensation system.

New disclosure requirements create another wind of change. Information gathering for disclosure requirements should not be underestimated. Data needs to be collected for newly consolidated entities and also for certain unconsolidated entities. New disclosure requirements (IFRS 12) will become mandatorily effective together with IFRS 10. They require qualitative and quantitative disclosures in particular for nonconsolidated funds, which were not previously required. The new disclosure standard aims for transparency regarding the funds’ nature and associated risks. The reader of the financial statements should understand the effects of certain unconsolidated investments on the reporting entity’s financial position and performance. However, imagining a multitude of unconsolidated funds and disclosures on a fund-by-fund level, an unmanageable flood of information and data would be the consequence. This would be neither meaningful nor is it intended by the standard: fund managers are expected to come up with a reasonable aggregation of information to brave the wind of change in disclosures. One way to achieve this is to create subcategories by nature and characteristics of unconsolidated funds. In summary, there is a lot of change ahead for the fund management industry with respect to consolidation and related disclosures. But there are ways to use the wind of change in a target-oriented manner: existing contracts might be amended and newly set-up fund structures might already consider the new consolidation principles. Building up walls does not seem to be the approach for facing the changes. The new standards have to be applied from January 2013 onward, with comparative numbers for 2012. It is thus essential to approach the changes in an efficient and goal-orientated way. Patricia Bielmann Partner Financial Services +41 44 249 48 84 Ellen Sevray Senior Manager Financial Services +41 44 249 46 38


The Evolution of Asset Pooling by Darina Barrett and Marc Escher

Pooling investments is one of the basic building blocks of the investment management industry. It is clearly more efficient for retail investors to invest in an investment fund than to replicate the investment fund's investment strategy. Asset pooling moves this concept to the next level by seeking to bring together different pools of managed assets to be managed as one. A typical example of this is the pooling of pension scheme assets for multinational groups, where all pension schemes within the group restructure from holding direct investments to becoming investors in a larger pool of assets. Asset pooling is not just limited to pension schemes, though; it applies equally to investment managers who manage several different investment funds, life assurance companies with different life funds, etc. In this article we explore the evolution of and current trends for asset pooling.



The Evolution of Asset Pooling

Benefits of Asset Pooling The primary objective in any asset pooling project will depend on the specific circumstances. However, in general, pooling will typically offer significant benefits including:

• Cost savings as a result of more purchasing power, i.e.

As the number of investor types and investment classes within the pooling structure increases, the operational complexity grows exponentially. Such structures place huge demands on administrative and custody systems, particularly where Net Asset Values, allocations of portfolios, tax-related reporting and other details in relation to the investment portfolio are required on a daily basis.

larger scale producing lower total expense ratios, etc.

• Delivering efficiencies in relation to the management and operation of the pool. • Enhanced governance, risk management and oversight. This can be particularly important for pension schemes where a single pool can be easier to monitor than several pools. • Access to more investment opportunities. Large scale means that minimum investment thresholds are easier to meet.

In essence asset pooling provides the smallest participant in the pool with the same opportunities as the largest member (without reducing the benefit for the largest member). The tax treatment of the structure is key to ensuring that tax costs associated with using a pooling vehicle do not outweigh these benefits. Tax Considerations Typically for asset pooling to be commercially viable it needs to function on a tax-neutral basis, i.e. the pooling arrangement should not impose additional tax cost. This can be challenging in certain jurisdictions and results in asset pooling vehicles typically being structured as transparent vehicles for tax purposes. Tax transparency can ensure that an investor’s tax treatment is not distorted by participating in pooling arrangements, e.g. where a pension scheme is entitled to an exemption from withholding tax from certain investments, tax-transparent asset pooling arrangements are designed to ensure that the pension scheme does not lose this exemption. The transparent nature in the jurisdiction of the pooling vehicle is normally clear. However, in order to maintain tax neutrality for investors in the pool, the treatment of the pooling vehicle needs to be determined for each investor and investment jurisdiction. The Past Initial pension pooling structures tended to be straightforward with more complex arrangements being the exception. The Irish transparent pooling vehicle is known as the Common Contractual Fund (“CCF”). The first CCF pooled the U.S. equity investments of several UK pension schemes and was launched in 2003. This was a relatively straightforward structure with all the investors sharing the same tax characteristics and the investments being limited to listed equities of a single jurisdiction.


Historically the ability to service complex pooling arrangements has proved to be a key commercial consideration in structuring and implementing large-scale asset pooling. In addition, obtaining comfort in relation to the tax treatment of pooling structures was initially complex and costly due to the innovative nature of new pooling vehicles. The operational challenges and the complexity of the tax issues resulted in relatively few asset pooling structures being implemented (although those implemented tended to be of significant scale).

”We expect the trend of pension pooling to continue.“ The Present Several fund administrators have invested significantly in developing the capability to service complex asset pooling arrangements. In addition, as the main pooling vehicles become more well known, the related tax issues have become less onerous to deal with (and importantly there are clear indications of expected treatment in most major jurisdictions). As a result, implementing asset pooling is now easier than ever. This is manifesting itself in Ireland with several CCFs launched in recent months with several more in the pipeline. The current demand for asset pooling is coming from two primary sources: Pension Pooling The pooling of pension scheme assets continues to be an area of interest for multinationals and asset managers alike. As the pensions industry continues to cope with deficit and funding issues, ensuring that the assets are managed in as efficient a manner as possible is driving many pension pooling projects. Interestingly, in our experience many pension pooling projects are being driven by the investment managers to the schemes. This has a clear advantage for the investment manager (in addition to the benefits for the pension schemes) as asset pooling structures typically bring more assets under their management. We expect the trend of pension pooling to continue.


The Evolution of Asset Pooling

Asset Manager Pooling Asset managers are also using asset pooling structures as a means of improving their product offering to clients and of differentiating themselves from their competitors. The implementation of the provisions of UCITS IV opens up more opportunities for asset pooling for investment funds. One of the key drivers for UCITS IV was to assist fund promoters to consolidate the number of UCITS and essentially increase the average asset size of a UCITS. Asset size normally has a direct impact on the costs for investors with larger funds typically having a lower total expense ratio. While estimates vary, an average U.S. mutual fund can be as much as six times larger than the average UCITS. UCITS IV facilitates cross-border mergers and Master-Feeder structures for UCITS, both of which should help asset managers increase pool sizes. There are very significant tax hurdles to cross-border mergers, particularly where UCITS are widely distributed.1 As a result we expect the adoption of Master-Feeder structures to be more popular, at least initially. The choice of Master fund for a UCITS Master-Feeder structure is based on the same criteria for choosing a pooling vehicle. We are currently seeing investment managers leaning toward tax-transparent structures such as the CCF or FCP in the main funds centers of Ireland and Luxembourg as the pooling vehicles of choice for the Master fund. However, we are also seeing other jurisdictions looking to enter the market – including the UK, for example, which has announced the introduction of a new tax-transparent entity. We expect 2012 will see the first UCITS Master-Feeder structure coming on stream. The Future The future will see asset managers continue to strive toward the holy grail of managing all assets within one structure.

“The future will see asset managers continue to strive toward the holy grail of managing all assets within one structure.” The continued development and enhancement of systems capabilities and the clarification of tax treatment (for example the recently signed Protocol to the Ireland–Switzerland double tax agreement specifically confirms the tax transparency of an Irish CCF)2 should make the cost-benefit analysis for pooling even more compelling.

CONCLUSION Asset pooling vehicles have entered the mainstream and are a viable option for product developers. As administrator capabilities continue to evolve and tax considerations are clarified, pooling assets of diverse investment structures will deliver significant efficiencies, cost savings and enhanced governance to those who invest in the upfront design and implementation costs.

Darina Barrett Partner, Head of Investment Management Financial Services +353 1 410 13 76 Marc Escher Director Financial Services +353 1 700 42 76 +41 44 249 24 13

For larger diverse asset managers this could include bringing together assets of investment funds, life assurance funds, segregated accounts and other structures within one overall pool (with the aforementioned structures acting as feeder vehicles). The early stages of such structures are currently being considered by some industry players. As the benefits of asset pooling are realized by more investors and service providers with advanced pooling capabilities obtain greater market share, further system developments can be expected.


For further details in relation to the tax challenges related to implementing UCITS IV see


Sovereign Wealth Funds Are Turning into Important Drivers of the Real Estate Market by Stefan Pfister and Ulrich Prien

National investment funds (sovereign wealth funds, SWF) play an increasingly important role on the capital markets. In 2011, SWFs held investments amounting to around USD 4.8 billion. Due to the continuing surplus revenues from raw material and goods exports, the relative strength was shifted further to the financial markets in favor of these state players from the developing countries.


Constant growth of SWF capital assets In contrast to other investment vehicles, the assets of sovereign wealth funds were able to grow significantly during the financial crisis (Sept. 2007: USD 3.3 trillion; Dec. 2011: USD 4.8 trillion). On the one hand, exchange rate effect (devaluation of the US dollar) may serve as an explanation. On the other hand, there was also significant creation of new sovereign wealth funds. During this time period, 12 sovereign wealth funds were issued, which increased the number of sovereign wealth funds from 45 to 57, according to the Sovereign Wealth Fund Institute. Of particular significance was the formation of the China Investment Corporation (CIC). This fund was simultaneously furnished with USD 200 billion from the growing Chinese currency reserves. In addition, the greatest reason for the massive increase in SWF capital may be that the petroleum-exporting countries as well as nations from East Asia still experienced significant performance surpluses during the financial crisis, and thus money continued to flow into their state vehicles.


Development of the accumulated SWF capital in billions of dollars


in billion US dollars

4500 4000 3500 3000 2500

Dec 11

Jun 11

Sep 11

Mar 11

Dec 10

Jun 10

Sep 10

Mar 10

Dec 09

Jun 09

Sep 09

Mar 09

Dec 08

Jun 08

Sep 08

Mar 08

Sep 07

2000 Dec 07

Increasing importance of sovereign wealth funds Over the course of the financial crisis, Switzerland has become one of the most important recipient countries of SWF capital investments. According to an assessment published by the Sovereign Wealth Fund Institute, SWF investments amounted to more than USD 25 billion between 2005 and 2011. Switzerland was ranked number five among the most favored investment locals. Only the USA, UK, China and France attracted more SWF investment. Both the commitment during the recapitalization of the large banks and, to a lesser extent, an increased activity within the real estate sector are responsible for the dynamic development of SWF investments within the local markets. Against the backdrop of the still smoldering euro crisis, Switzerland was able to remain in the focus of these state investor groups.

Source: Sovereign Wealth Funds Institute

Cash is king For a long period, SWFs invested primarily in western role model enterprises in order to generate a transfer of knowhow and to use this new knowledge in the development of their own economies. The actual Return on Equity and the diversification of the investment portfolio maintained a rather secondary significance. In this period, SWFs were dependent upon the support of the West in order to even be able to carry out investment. However, since the financial crisis, a diametric role reversal has taken place. Now, it is the West, with its liquidity shortfalls, who is yearning for an injection of cash from the East. As a result, sovereign wealth funds may choose from among a high number of investment proposals, and they are courted by western governments and companies. As part of this new backdrop, investments in real estate remain popular for SWFs. Investments in real estate are on the march Studies show that the average real estate share in the case of SWFs will increase from the current level of 7.5 % to around 10 %. In 2011, the SWFs already invested 56 % in real estate. This represented an increase of 5 percentage points from 2010. There are primarily four explanations for the increased attractiveness of this investment class. Real estate investments within the prime segment generally exhibit a lower volatility opposite stock investments and thus can improve the risk/return characteristics of an investment portfolio. At the same time, real estate investments offer partial protection against inflation.

In addition, there exists a certain need to catch up for investments in real estate. Real estate investments were underweighted for a long period of time as only limited technology and know-how transfer effects can be generated from real estate investments. Finally, it must be said that real estate investments are marked by a long-term investment character, which corresponds with the investment style of SWFs. The Norwegian pension funds and the GIC funds from Singapore are representative of the increasing appetite in real estate. At the beginning of 2011, the Norwegian pension fund declared its intention to increase its investment in foreign real estate by 5 % of the fund assets, which corresponds with an investment volume of USD 28 billion. GIC funds from Singapore also are planning to increase its real estate exposure from the current 9 % to 12 %. For this purpose, there is a separate real estate fund (GIC RE) that already belongs to the ten largest real estate investors worldwide.

“Global and industry networks such as KPMG support sovereign wealth funds in their investment decisions and the investment management of international capital investments.” In contrast to the opportunity funds, which were active prior to the financial crisis, SWFs operate with a high degree of own equity. First and foremost, they are interested in first class objects (core and core plus), which can also exhibit a trophy character. Upmost on the shopping lists of SWFs are prime commercial properties in European metro areas, such as Paris and London, as well as hotels within the top segment. In the recent past, there has also been increasing interest in secondary markets such as Switzerland.

Swiss real estate on the radar of SWFs SWF investment in Swiss real estate has dealt, until now, with investment in hotels in the luxury segment. The sovereign wealth fund Qatar Investment Authority has made investments in the Schweizerhof and in Bürgenstock business operations. Further additional purchases can be counted upon in the future resulting from investments in the Swiss market from other globally active funds from Asia, such as Korea or Malaysia. A valuable investor for Switzerland would also be the pension funds from Norway. The spending spree of SWFs will be limited naturally by the size of the Swiss real estate market, because there is only a limited number of objects here that meet the strict investment criteria of SWFs. Nevertheless, against this backdrop, continued engagement of foreign sovereign wealth funds in Swiss real estate can continue to be counted upon.

CONCLUSION Sovereign wealth funds are increasing in importance globally as investors – not least in Switzerland. During the period 2005 thru 2011, SWFs invested USD 25 billion in Switzerland. In comparison: the total of the direct investments in Switzerland amounted to around USD 21 billion in 2010. The path adopted by Switzerland for an open policy opposite sovereign wealth fund investments is welcomed. Foreign investments ensure sufficient inflow of capital and know-how into Switzerland, which is an essential condition for sustainable competitiveness.

Stefan Pfister Partner, Head of Advisory Financial Services +41 44 249 26 67 Ulrich Prien Partner, Real Estate Financial Services +41 44 249 21 77


GIPS 2010: First Experiences by Yvan Mermod and Ann-Mirjam Levy

The new version of the Global Investment Performance Standards (GIPS 2010) was released in 2009 with a transition period until 2011. Firms claiming compliance with the GIPS had until the close of 2011 to implement changes. We observed different reactions toward this implementation depending on the size and type of firms’ products. No major changes Changes compared to previous versions of the GIPS concern mainly the change from market to fair value, the addition of a risk measure and a clear incentive for verification by an independent verifier. Furthermore, firms have now to document in writing how they ensure the existence of assets. With regard to valuation of investments, GIPS are now converging toward international accounting standards by using the concept of fair value. The GIPS Standards provide a hierarchy that has to be followed by firms to value the investments, from quoted valuation to internal models using subjective unobservable market input. The calculation and presentation of a risk measure as well as the disclosure of information on risk have generated a lot of discussions during the consultation period. Finally, firms are required to present only the three-year annualized ex-post standard deviation for the composite and the benchmark or, if considered by the firm as not relevant, the reason why and an additional risk measure. Verification is encouraged by the addition of a clear statement in the claim of compliance providing the information to the prospective client on whether the firm has been verified or not and for which period. Other changes imply additional disclosures and formalization in the policies and procedures. No fundamental reorganizations Firms investing only in quoted or largely traded securities are only slightly impacted by the change in the valuation concept. In that context, firms were already using observable market prices which are the top line of the valuation principles. Furthermore, firms that invest in other types of investments were already concerned by the valuation challenge. These firms have to provide to their existing clients statements valuing their investments.


Fair value is required in the context of funds where net asset values must be calculated. However, for private investors, there is no requirement yet to provide fair valuation in clients’ statements, but an increased expectation. The valuation issue is then not limited to GIPS, and the adoption of an internal practice on valuation must be considered more broadly.

”Maintaining GIPS compliance can be a challenge for firms, specifically for asset managers investing in private equity, hedge funds and real estate.“ The additional risk measure required has necessitated the development of a new calculation. In practice, this measure is not difficult to calculate and major systems have developed their module for calculation. The added value of this measure is not always perceived by the firms as this is limited information. However, the use of this risk measure is also required in the context of UCITS IV, as it has to be integrated in the KIID (Key Investor Information Document). This rule will also be implemented in Switzerland. With regard to verification, the additional statement on verification that has to be included in presentations is not a limitation in Switzerland, as most firms claiming compliance with GIPS are already verified by an independent verifier. Furthermore, the documentation requirement is not an issue. The regulatory provisions in Switzerland already require firms, depending on their status, to adopt policies and procedures for their main activities. Firms have documented specifically the GIPS process in policies and procedures and can leverage on other existing procedures to complete the GIPS one, for example in the field of marketing, ensuring the existence of assets and valuation.

Demanding standards For small firms, additional requirements such as a risk measure and additional disclosures are seen as a difficulty as it increases the time and related costs for maintaining their compliance with the GIPS. For larger firms, this new version of the GIPS has not generated a substantial amount of work and, therefore, changes are not considered as a challenge. Maintaining GIPS compliance can be a challenge for firms, specifically for asset managers investing in private equity, hedge funds and real estate. The setup of a formalized process and related controls, the maintenance of an up-to-date documentation and the definition of responsibilities are challenges that all GIPS-compliant firms face; and, in that context, firms were ready to provide the additional effort to comply with the new version of the Standards.

Yvan Mermod Partner Financial Services +41 22 704 16 61 Ann-Mirjam Levy Senior Manager Financial Services +41 22 704 16 29


Pinboard KPMG provides a wide range of studies, publications and newsletters on themes and topics of the financial services industry. For more information please go to Investment in Switzerland Switzerland as a Popular Business Location, April 2012 The highly competitive nature of business today demands a careful evaluation of the choice of location from where to do business. Switzerland clearly offers one of the most advantageous business environments in the world. Fill the Glass to the Brim Succeeding in a Changing World, April 2012 KPMG analyzed once more the implications of UCITS IV Directives. The survey shows that while the overall number of countries with tax issues has decreased since 2010, there still remains a significant portion of EU member states that have not addressed the issues.

IFRS Practice Issues Applying the Consolidation Model to Fund Managers, March 2012 Whether or not a fund manager has to consolidate its managed funds has long been an issue. The new consolidation standard is an answer that needs to be operationalized. Our publication helps fund managers to rise to the challenge by focusing on the key factors. Private Banking 2012 Private Banks Need to Focus, February 2012 Considerable regulatory and cost pressures are forcing private banks to adopt new business models and clearly distinguish between their client segments. This is according to the latest international private banking study conducted by KPMG and the University of St. Gallen.

M&A Yearbook 2012 Retrospect and Outlook, January 2012 Based on last year's deals, 2012 potentially provides attractive destinations for Swiss businesses. The sixth annual edition of our M&A Yearbook provides insights, market observations on likely trends for the coming year as well as a retrospect of the key developments in 2011.

Investor Assurance The Road to Transparency, March 2012 Transparency has become a critical issue for the industry. To meet the demands of institutional investors and regulators, many investment managers have adopted the various best practice standards. However, as a recent KPMG survey reveals, adhering to these standards, and compiling the desired assurance reports, is no longer sufficient.

Fund News Monthly newsletter offering a quick overview on current regulatory and tax-related developments as well as the latest information on investment funds. KPMGnews Bi-weekly newsletter containing articles on sector and market insights, media releases and events. Compliance Matters Periodical newsletter providing insights on regulatory topics impacting the financial services industry on a local and global level. Subscribe to these free newsletters on


Frontiers in Finance Forging Forward: Financial Services 2012, March 2012 The turmoil in the financial services industry shows no sign of abating. Banks, insurers, investment managers – all face a future which will be as different as it is currently obscure. The focus of this edition is on what can be done to forge forward in this environment.


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IFRS Update for Financial Services 5 June 2012, 5–8 pm, Auditorium KPMG Zurich Real Estate Summer/Networking Event 2012 28 August 2012, 6–10 pm, Belvoirpark Zurich CISA-Event Investment Management Update 4 September 2012, 5–8 pm, Baur au Lac, Zurich

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Contacts Daniel Senn Partner, Head of Financial Services Member of the Executive Board +41 44 249 27 57

Stefan Pfister Partner, Head of Advisory Member of the Executive Board +41 44 249 26 67

Ellen Sevray Senior Manager Financial Services +41 44 249 46 38

Markus Schunk Partner, Head of Investment Management Financial Services +41 44 249 33 36

Yvan Mermod Partner Financial Services +41 22 704 16 61

Jason Zuecker Senior Manager, Tax Financial Services +41 44 249 20 71

Philipp Arnet Partner, M&A Financial Services +41 44 249 32 71

Ulrich Prien Partner, Real Estate Financial Services +41 44 249 21 77

Benjamin Bloch Manager, Attorney-at-law, Legal Financial Services +41 44 249 31 54

Darina Barrett Partner, Head of Investment Management Financial Services +353 1 410 13 76

Gregoire Winckler Partner, Tax Financial Services +41 44 249 47 39

Pascal Sprenger Manager, Attorney-at-law, Legal Financial Services +41 44 249 45 26

Patricia Bielmann Partner Financial Services +41 44 249 48 84

Marc Escher Director Financial Services +353 1 700 42 76 +41 44 249 24 13

Jan Wetter Manager, Transaction Services Financial Services +41 44 249 26 95

Dr. Armin Kühne Partner, Attorney-at-law, Legal Financial Services +41 44 249 22 71

Ann-Mirjam Levy Senior Manager Financial Services +41 22 704 16 29

Published by – KPMG AG Editor – KPMG AG, Badenerstrasse 172, Postfach, CH-8026 Zurich Telephone +41-249 31 31, Telefax +41-249 25 92, e-mail: Editorial team – Markus Schunk, Head Investment Management – Heinz Weidmann, Financial Services – Manuela Zwald, Marketing Financial Services Design – Sandro Nicotera, Zurich Print – Heer Druck, Sulgen Articles may only be republished by written permission of the editorial team and quoting the source: KPMGs Swiss Financial Services Newsletter. Swiss Financial Services Newsletter is published three times a year in German and English.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2012 KPMG Holding AG/SA, a Swiss corporation, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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Swiss Financial Services Newsletter - May 2012