Inhalt

Switzerland's L-QIF: The New Unregulated Fund

As Switzerland takes strides to remain at the forefront of asset management, the impending introduction of the Limited Qualified Investor Fund (L-QIF) in 2024 signals an important development for wealth managers and investors alike.

 

François Rayroux
Partner, Co-Head of Asset Management
Dr.iur., Attorney at Law, LL.M., Lenz & Staehelin                        
Olivier Stahler
Partner, Co-Head of Asset Management
Attorney at Law, LL.M., Lenz & Staehelin                                    
Sarah Bachaalany
Associate
Dr.iur., Attorney at Law, Lenz & Staehelin                                     

 

1. What is the L-QIF?

The L-QIF, a novel entrant in the Swiss collective investment landscape, is exclusively fashioned for qualified investors. Its distinctiveness lies in its regulatory framework: the L-QIF sidesteps the conventional authorization and supervision requirements applicable to Swiss funds, provided the L-QIF's fund management company is under the supervision of the Swiss Financial Market Supervisory Authority (FINMA).

This exemption from typical regulatory channels is grounded in new legal provisions of the Collective Investment Schemes Act (CISA; Art. 118a et seq.) and its implementing ordinance, the Collective Investment Schemes Ordinance (CISO; Art. 126a et seq.).

As a new type of collective investment schemes, the L-QIF will endorse existing legal forms as provided by CISA, i.e. the form of a contractual fund, an investment company with variable capital (SICAV) or a limited partnership for collective investment (LPCI) (Art. 118c CISA).

 

2. Who is the L-QIF for?

Eligible investors include qualified investors exclusively as defined by CISA (Art. 10 para. 3 and 3ter):

  • Professional clients under the Swiss Financial Services Act (FinSA), such as pension funds and high net worth individuals (HNWI) with an opting-out;
     
  • Institutional clients under FinSA, such as insurance companies or trustees subject to prudential supervision; and
     
  • Private clients, which have entered into a discretionary or advisory agreement with a Swiss bank or another financial intermediary supervised by FINMA, with a non-Swiss financial intermediary subject to an equivalent prudential supervision, or with a Swiss insurance company, and have not opted-out of the status of qualified investors.

It is however worth noting that the new rules will preclude HNWI and private structures created for them qualifying as professional clients under FinSA from investing in real estate L-QIF. Concerns relating to potential tax losses appear to have provoked this limitation.

 

3. Why could the L-QIF be a Game-Changer?

The introduction of the L-QIF could represent more than just a new type of collective investment vehicle:

  • Tailored Solutions: The investment rules applicable to L-QIF will offer considerable flexibility, enabling Swiss financial institutions to sculpt investment portfolios that resonate with HNWI or pension funds for example. L-QIFs in the form of SICAVs and contractual investment funds will be subject to the same requirements as Swiss alternative funds, whereas no provision will restrict the investment policy of an L-QIF in the form of LPCI. In the absence of statutory investment rules, the fund documents will define the investment policy and risk diversification requirements. Eligible investments should encompass any asset class, including digital assets (such as cryptocurrencies), wine, artwork or vintage cars.
  • Reduced Barriers: The exemption from regulatory authorization and supervision at the product level for L-QIF will soften constraints related to the launch of collective investment schemes, by reducing costs and the time to market.

 

4. Potential Roadblocks Ahead

The road to widespread L-QIF adoption, while promising, has its share of potential pitfalls. A significant concern is the stance of the Federal Finance Department's (FFD) initial draft on "family funds". If the ordinance's final version retains this limitation, it could pose challenges for the private wealth sector, as the creation of "family funds" via L-QIFs would be off the table in many cases. The Swiss funds industry has expressed strong opposition in that regard and a new draft of revised CISO is expected from the FFD.

Furthermore, while the audit scope of L-QIFs will in essence match those of regulated funds, it is uncertain whether audit firms will chose to apply even higher standards in practice, hence triggering additional costs.

By virtue of an amendment of the Swiss tax legislation, L-QIF will enjoy the same tax regime as other fund categories. They will consequently be treated as transparent for Swiss tax purposes, save for the real estate assets they hold directly. As all other Swiss funds, L-QIF will be subject to the Swiss withholding tax of 35%. This might pose challenges to attract non-Swiss investors, especially if they are ineligible for reclaims.

 

5. Conclusion – The Future of Swiss Investment?

The FFD is expected to publish a new revised CISO, thus announcing whether some key restrictions previously suggested and criticized by the industry are maintained. Experience will show whether the L-QIF provides enough flexibility to attract both asset managers and investors.

By marrying flexibility with innovation, the L-QIF not only caters to the contemporary needs of wealth managers and investors but also paves the way for future financial endeavors. As we inch closer to its launch in 2024, staying informed and prepared will be pivotal for those looking to harness its full potential.

 

 

Biographies

Dr. François Rayroux is partner based at our Geneva office and head of the Asset Management group. He advises a number of Swiss and international financial institutions in all banking, asset management and regulatory matters, in or outside insolvency, whether in the context of transactions or not,  focusing on regulatory issues, asset management, financial services, contractual arrangements and distribution and financial products and services of all types, including in particular derivative instruments, structured products as well as digital assets. François is considered a leading lawyer in regulatory issues, banking and asset management law in Switzerland, and has been consistently nominated by major directories as an expert in these fields, in particular by Chambers since many years as "Star Individual" in Investment Management.

Olivier Stahler is a partner who specialises in banking and finance law, acting for a broad range of Swiss and foreign financial institutions. These include banks, fund managers and insurance companies, as well as commodities traders and industrial groups. Olivier gives regulatory advice in the context of the granting of licences for banks, securities houses and asset managers by the Swiss financial market supervisory authority. He is also involved in the structuring of financial products, in particular private equity and hedge funds, and acts for financial institutions and corporate borrowers in both domestic and international financing transactions. Olivier is a frequent speaker at professional conferences on banking and financial law issues, as well as investment funds.

Sarah Bechaalany is an associate at our Geneva office, where she is a member of the Banking and Finance group. Her practice focuses on banking and finance, as well as collective investment schemes. She also acts as deputy judge of the Swiss Federal Supreme Court.