According to the Asset Management Association Switzerland (AMAS), the Swiss fund market continued its positive performance in the first half of 2024 and grew by a double-digit percentage, thanks in particular to strong equity returns. The volume of the Swiss fund market reached a new high of CHF1,507 billion. However, new money inflows remained at a low level and were limited to bond and money market funds.

With a volume of CHF1,506,777 million, the Swiss fund market reached a new high at the end of the first half of 2024. The volume has therefore increased by CHF138,029 million or 10% since the end of 2023. The lively development at the beginning of the year thus continued in the second quarter of 2024, with the main impetus coming from the equity markets, which continued to offer good returns.

New money inflows remained at a low level, with an increase of CHF9.2 billion or 1.6%, and continued to be limited to the low-risk asset classes bonds (CHF9 billion) and money market (CHF10 billion). Despite the positive environment in the first half of 2024, equity funds and investment strategy funds suffered outflows of CHF3.6 billion and CHF3.5 billion respectively, while CHF1.5 billion flowed out of alternative investments.

By contrast, inflows into the Swiss ETF market remained strong. This grew by 19.7% to CHF244,478 million in the first half of the year alone. Equity products achieved an inflow of new money totalling CHF6.3 billion.

The hierarchy of the largest Swiss asset managers remains unchanged, with UBS at the top, followed by Credit Suisse, which will continue to be reported separately in the statistics while the funds retain their current names. Of the 10 largest fund providers in Switzerland, Swisscanto (now 10.5%) and Pictet (now 6%) have increased their market share.

Since 1 March 2024, a new Swiss fund category, the Limited Qualified Investor Fund (L-QIF) is available to qualified investors. On this date, the associated amendment to the Collective Investment Schemes Ordinance (CISO) entered into force together with the amendment to the Collective Investment Schemes Act (CISA).

The L-QIF is intended to strengthen the competitiveness of the Swiss fund and asset management centre by increasing the number of collective investment schemes launched in Switzerland.

AMAS has strongly advocated the introduction of the L-QIF in Switzerland and welcomes this new Swiss fund category. However, the bill does not fully achieve the original objective of liberalising the structure and thus creating a competitive alternative to the Luxembourg Reserved Alternative Investment Fund (RAIF).

The core of the original version of the L-QIF was to provide a flexible collective investment scheme under Swiss law that is not subject to authorisation by the Swiss Financial Market Supervisory Authority (FINMA) and can therefore be set up much more quickly and cost-effectively. At the same time, the usual quality and security should be guaranteed: the asset manager or fund management company of these funds must be a FINMA-supervised institution. This indirect supervision takes appropriate account of the client protection needs of qualified investors.

Furthermore, in September 2022, the AMAS “Self-Regulation on Transparency and Disclosure for sustainability related collective investment schemes” was published and has been in force since 30 September 2023. The self-regulation is binding for AMAS members, regardless of whether and when a state regulation should become valid. Its framework for sustainable asset management lays down the organisational requirements for financial institutions, as well as for product design and disclosures to investors to prevent and combat greenwashing by enhancing the quality of collectively managed sustainable assets through binding standards, while improving transparency through comprehensive documentation and reporting obligations.

According to the website of FINMA, as at the end of September 2024 there were 1962 Swiss open-ended fund structures approved in Switzerland, including 47 so-called other funds for alternative investments, and only 25 closed-ended structures.

The closed-ended structures are exclusively limited partnerships for collective investments (LPCIs).

An LPCI is a company whose sole object is collective investment. At least one member, which is the general partner, bears unlimited liability, while the other members – ie, the limited partners – are only liable up to the total limited partner’s contribution.

Such LPCIs must be approved by FINMA as financial institutions. The partnership agreement must also be approved by FINMA.

Overview of the Regulatory Framework

In Switzerland, the regulatory framework for alternative investment funds (AIFs) is primarily governed by the CISA. This law sets out the principles governing the establishment, activities and oversight of collective investment funds, including AIFs, and the rules applicable to their administrators and managers. The provisions of the CISA are further substantiated by its implementing ordinances, the CISO and the FINMA Collective Investment Schemes Ordinance (CISO-FINMA).

In addition, other financial market laws set out the legal framework for financial institutions and financial services related to AIFs:

• The Federal Act on Financial Institutions (FinIA) governs the regulatory requirements for acting as a financial institution, in particular as a manager of collective assets or as a fund management company, including as a manager or management company of an AIF. Further guidance on the FinIA is provided by its implementing ordinances, the Financial Institutions Ordinance (FinIO) and the FINMA Financial Institutions Ordinance (FinIO-FINMA).
• The Federal Act on Financial Services (FinSA) regulates the provision of financial services, such as the sale of units in AIFs, by financial service providers in Switzerland or for clients in Switzerland. The Financial Services Ordinance (FinSO) further implements the rules contained in the FinSA.

Furthermore, the self-regulation of AMAS is recognised by FINMA as a minimum standard and may be enforced as such. The AMAS Guidelines (last revised on 1 January 2022) include provisions that are also relevant to AIFs, such as a code of conduct and technical guidelines for real estate funds and other collective investment schemes.

Investment companies established as Swiss companies limited by shares and either (i) listed on a Swiss stock exchange or (ii) reserved for qualified investors with registered shares are excluded from the scope of the CISA. Rather, these companies are regulated by Swiss corporate law, and, in the case of listed companies, by the stock exchange’s listing rules and any other applicable regulations.

Investment Limitations

AIFs in Switzerland may be subject to specific investment limitations based on their structuring:

• Open-ended AIFs, such as contractual funds (FCPs) and investment companies with variable capital (SICAVs), must adhere to principles of risk diversification. Depending on the type of open-ended fund (securities funds, real estate funds or “other funds”), leverage limits and other investment restrictions apply. For instance, “other funds for alternative investments” may leverage up to 600% of their net assets, borrow up to 50% of their net assets, and engage in short-selling. These funds must explicitly state their investment restrictions and the nature and extent of permissible short selling in their fund regulations.
• Closed-ended AIFs, like LPCIs and investment companies with fixed capital (SICAFs), are not subject by law to any investment limitations. However, the fund regulations may provide for such restrictions.

Regulatory Authorisation and Approval

In principle, the establishment and operation of an AIF and the management of its assets require authorisation from FINMA, which must also approve the fund regulations. The authorisation and approval process typically involves a preliminary discussion with FINMA, followed by a detailed application. The duration of this process varies from case to case, depending in particular on the complexity of the fund and the completeness of the application. In general, it takes between three and six months. For AIFs open to all investors, FINMA aims to approve within eight weeks, while AIFs restricted to qualified investors may receive approval within four weeks. However, these timeframes are indicative rather than mandatory and only start to run once FINMA has determined that the filing documents are complete.

Foreign AIFs do not require regulatory approval, as long as they are only offered to qualified investors. The offering of foreign AIFs to non-qualified (retail) investors is subject to approval by FINMA (see also 4.4 Rules Concerning Marketing of Alternative Funds).

AIFs in the form of an L-QIF do not require FINMA authorisation or approval and are not supervised by FINMA. The same applies to investment companies organised strictly under private law (see 2.2 Regulatory Regime for Funds).

Prospectus and Key Information Document (KID)

Open-ended AIFs

Open-ended AIFs (FCPs and SICAVs) must produce and publish a prospectus when offering to the public. The minimum content of the prospectus is set out in Annex 6 of the FinSO and includes, among other things, the fund’s investment objectives, policy and techniques, permitted investments and investment restrictions, risk factors, rights of investors, compensation, costs and fees. The fund regulations are usually also included in the prospectus.

AIFs targeting retail investors outside the scope of a portfolio management agreement must further produce a Key Information Document (KID) which contains essential information for investors, for example the type and characteristics of the units and their risk/return profile. The minimum content of the KID can be inferred from the template in Annex 9 of the FinSO.

“Other funds for alternative investments” must include a reference to the special risks involved in alternative investments within their prospectus and KID as well as in the fund name and advertising material.

Closed-ended AIFs

LPCIs must produce a prospectus containing the information in the partnership agreement on investments, investment policy, techniques and restrictions, and risks. SICAFs produce a prospectus analogous to that required for open-ended AIFs.

Closed-ended AIFs, like open-ended AIFs, must provide a KID to retail investors. However, since LPCIs are restricted to qualified investors, this generally only applies to SICAFs.

Foreign AIFs

Foreign AIFs offered in Switzerland to non-qualified investors or high net worth individuals (including private investment structures set up for them) who have opted to be treated as professional clients under the FinSA must include a “Swiss wrapper” in their prospectus, which contains information on the Swiss representative and paying agent, among other Swiss-specific information.

Publication and exemptions

The prospectus and the KID may be published in newspapers or in the Swiss Official Gazette of Commerce, by free-of charge distribution in printed form at the issuer’s registered office or from the office involved in the issue, or in electronic form on the issuer’s website or on the websites of other specified entities (eg, the trading venue). Prospectuses of AIFs must be published in one single document.

AIFs structured as a L-QIF are not required to produce a prospectus. In addition, FINMA may in some cases exempt AIFs that are only open to qualified investors from the prospectus requirement.

Other Disclosures

In addition to the prospectus and KID, AIFs must make available by law various information to investors as specified in the CISA and the CISO. For example, real estate funds must publish the market value of the fund’s assets and the resulting net asset value of the fund units.

The media of publication for this type of information must be specified in the prospectus of the AIF, whereby print media or electronic platforms that are publicly accessible and recognised by FINMA are permitted.

Annual and Semi-Annual Report

Open-ended AIFs and LPCIs must publish an audited annual report within four months of the end of the financial year and a semi-annual report within two months after the end of the first half of the financial year. Both the annual and semi-annual reports are made available for inspection free of charge to interested parties for ten years.

Similar reporting requirements apply to foreign AIFs that are not offered exclusively to qualified investors.

Direct Taxes

Contractual funds, SICAVs and LPCIs, provided they do not hold direct ownership of immovable property (direkter Grundbesitz), are not subject to private income and wealth tax, nor to corporate income and capital tax, as they are treated transparently for tax purposes. Contractual funds, SICAVs and LPCIs are liable to corporate income and capital tax, and may be subject to real estate gains and transfer taxes, for direct ownership of immovable property.

SICAFs are taxed like a corporation (opaque treatment). Hence, they are subject to corporate income and capital tax.

Withholding Tax

In contrast to direct taxes, contractual funds, SICAVs and LPCIs are treated as opaque for purposes of withholding tax. The same applies to SICAFs. Distributions are in principle subject to withholding tax at a rate of currently 35%. Distributions of (i) capital gains, provided they are separately disclosed in the financial statements of the fund, and (ii) income from direct ownership of immovable property are not subject to withholding tax.

If at least 80% of the income of a contractual fund, SICAV or LPCI is from a foreign source, the withholding tax liability of foreign investors can be fulfilled by way of a declaration of domicile (so-called affidavit procedure).

Contractual funds, SICAVs and LPCIs that only have domestic qualified investors can fulfil their withholding tax liability by way of notification.

Since contractual funds, SICAVs and LPCIs are treated as opaque, they can reclaim Swiss withholding tax based on unilateral Swiss law, provided the income is recorded in the fund accounting.

In Switzerland, AIFs can engage in loan origination activities, but they must adhere to specific regulatory requirements to ensure compliance with Swiss financial laws. For example, loan origination by funds may trigger licensing requirements under the Swiss Banking Act if conducted on a commercial basis. Therefore, funds involved in loan origination must assess whether their activities fall within the scope of banking regulations and, if so, obtain the necessary license.

Like all AIFs, funds that engage in lending activities, regardless of their type, must go through the FINMA approval/authorisation process, with the exception of L-QIFs.

The CISA specifically lists that AIFs structured as “other funds for alternative investments” may invest in precious metals, real estate, commodities, derivatives, units in other collective investment schemes and other assets and rights. This list is indicative and not exhaustive.

Due to the non-exhaustive nature of the list, almost all tangible assets can serve as investment objects. In particular, antiques, works of art, vintage cars, coins, exclusive wines, whiskey or similar items may be included. Furthermore, investments in litigation funding as well as consumer loans and loan portfolios are generally permissible.

However, an AIF is, of course, not allowed to invest in illegal assets and must adhere to certain general, non-fund driven restrictions set out in various Swiss laws with regard to specific assets (eg, restrictions on purchasing residential real estate in Switzerland). In this context, it is noteworthy that in Switzerland cannabis is generally a prohibited narcotic drug under the Swiss Narcotics Act. Investments in cannabis products with less than 1% THC and cannabinoids used for medical purposes are possible due to exemptions from the Swiss Narcotics Act.

In addition, cryptocurrencies such as Bitcoin or Ethereum are eligible investments for AIFs. In 2021, FINMA approved the first Swiss crypto fund named “Crypto Market Index Fund”.

In principle, AIFs may therefore invest in non-traditional assets. However, as with any AIF, FINMA must grant its approval in the individual case. The newly introduced L-QIFs, on the other hand, do not need the prior approval or authorisation of FINMA, and Swiss fund regulation (ie, CISA) does not restrict the permissible investments of an L-QIF at all.

It is common to use newly established subsidiaries to establish acquisition structures. For acquisitions in Switzerland, such subsidiaries could be established in Switzerland or abroad – eg, in Luxembourg. The reasons are, among others, the establishment of structurally subordinated financing structures, avoidance of Swiss withholding taxes being triggered or, against the background of secured financings, to establish a structure that allows for a single point of enforcement.

Swiss AIFs must have their head office in Switzerland and be effectively managed from Switzerland. This means that the ultimate supervision and key management decisions must be carried out within the country. However, investment decisions may be delegated to third parties (in and outside of Switzerland) under certain conditions (see 3.7 Outsourcing of Investment Functions/Business Operations).

The members of the executive board of Swiss fund management companies or Swiss managers of collective assets must be resident in a place from which they can effectively manage the fund or its assets. In view of the above requirement that the AIF must be administered and effectively managed from Switzerland, this essentially means that these persons must have their place of residence in Switzerland or in a neighbouring area. The fund management company and the general partners of an LPCI must be incorporated as a Swiss company limited by shares (see also 3.8 Local Substance Requirements).

Furthermore, AIFs and their managers must be organised in such a way that they can ensure proper management and comply with their legal obligations. This includes local business premises and qualified local staff. For fund management companies, the law provides that they must (as a rule) have at least three full-time positions with authority to sign.

Swiss law provides for a number of rules regarding the choice and location of other service providers, including rules for non-local service providers:

• Administrator: Swiss AIFs and their managers may delegate fund administration tasks (such as bookkeeping and other support services) to a qualified third party under the general provisions governing outsourcing (see 3.7 Outsourcing of Investment Functions/Business Operations). Special requirements may apply to the delegation to an administrator abroad. For example, Swiss managers of collective assets, fund management companies and SICAVs must expressly guarantee that they, their auditors and FINMA can exercise and enforce their inspection and audit rights when outsourcing abroad.
• Custodian: Open-ended AIFs in the form of SICAVs must appoint a custodian, subject to an exemption granted by FINMA, for example if the SICAV is open exclusively to qualified investors. In the case of FCPs, the custodian is a party to the fund contract. The custodian must be a Swiss bank (or a branch of a foreign bank) licensed and supervised under the Swiss Banking Act. FINMA may also allow AIFs to appoint a prime broker.
• Auditor: Fund management companies, SICAVs, LPCIs, SICAFs and representatives of foreign AIFs must appoint an audit company licensed by the Federal Audit Oversight Authority to carry out an audit. The auditor acts as an extension of FINMA and reports to it on a regular basis.
• Representative/paying agent: Foreign AIFs marketing to retail investors in Switzerland or qualified investors in Switzerland who are high net worth individuals (HNWIs) or private investment structures set up for them and who opted to be treated as professional clients under the FinSA must appoint a Swiss representative and a Swiss paying agent. The paying agent must be a licensed bank pursuant to the Swiss Banking Act.
• Compliance officer: As part of the general duty to maintain an appropriate organisational structure, AIFs must ensure that they have a separate and appropriate compliance function covering all of their business activities. As a member of executive management, the chief compliance officer must be resident in a place from which he or she can effectively perform his or her duties (see 2.8 Local/Presence Requirements for Funds).
• Anti-money laundering unit: Financial intermediaries, including AIFs and their managers, must appoint one or more qualified persons to act as an internal anti-money laundering unit (see also 4.9 Anti-Money Laundering (AML) and Know Your Customer (KYC) Regime). The financial intermediary may designate competent external persons to act as an anti-money laundering unit under its responsibility if (i) it is not in a position to set up its own unit because of its size or organisation; or (ii) the establishment of such a unit would be disproportionate.
• Client advisers: Natural persons who market AIFs in Switzerland, either in their own capacity or on behalf of a financial service provider (such as an AIF or its managers), must be registered in a register of client advisers. There is an exemption from the registration requirement for client advisers of foreign financial service providers that are subject to prudential supervision abroad, if the services they provide in Switzerland are exclusively for qualified investors.

New Federal Law on the Transparency of Legal Entities and the Identification of Beneficial Owners

At the end of August 2023, the Swiss Federal Council launched a consultation on a new federal law on the transparency of legal entities and the identification of beneficial owners. Following the conclusion of the consultation period, the Swiss Federal Council adopted the corresponding dispatch on 22 May 2024, to be submitted to Parliament. The draft legislation states that SICAVs, SICAFs and LPCIs will be subject to the new act and, if enacted, will be required to comply with new duties, including entering information on their beneficial owners in a new federal register. However, it is not yet clear whether and when the draft legislation will be enacted.

Possibility of a Swiss ELTIF

AMAS reports that efforts are being made to replicate the European ELTIF concept autonomously in the Swiss CISA. Consequently, such a concept could possibly be part of a subsequent revision of the CISA. However, no corresponding draft law has yet been published, so this possibility is still very vague.

L-QIF

Since the entry into force of the amended CISA on 1 March 2024, Swiss fund management companies may take advantage of the new L-QIF regime and establish contractual funds, SICAVs or limited partnerships for collective investments under this regime without having to obtain prior approval or authorisation from FINMA. At the time of writing, a total of five L-QIFs are listed in the directory of registered L-QIFs. It will be of interest to observe the extent to which fund management companies make use of this new opportunity in the future, and to analyse the impact it will have on the market for AIFs in Switzerland.

Promoters/sponsors of AIFs could come from all over the world. In practice, however, the majority come from Switzerland’s neighbouring countries or, when from further afield, primarily from the United States or Nordic countries. The main reasons for this are Switzerland’s:

• stable political and economic environment;
• favourable tax regime;
• highly developed financial ecosystem;
• robust legal and regulatory framework;
• access to a wealthy investor base; and
• high living standards, including excellent educational and healthcare systems.

These factors make Switzerland an attractive location for asset managers seeking a stable, efficient, and well-regulated base for their global operations.

It is standard practice for asset managers to establish a Swiss corporation, typically as a subsidiary of a foreign asset management entity. A key factor driving this structure is the individual personnel compensation and equity incentive arrangements, along with the associated taxation. Switzerland’s relatively favourable tax regime for certain forms of equity participation and profit-sharing makes it attractive for fund managers to structure compensation packages that incentivise long-term performance. These arrangements are usually supported by tax rulings.

Swiss managers of collective assets and Swiss fund management companies must be authorised as such by FINMA and are subject to its ongoing prudential supervision. Authorisation is granted only if the requirements of FinIA/FinIO are met, including those relating to organisation, risk management, business conduct, minimum capital, capital adequacy, and own funds.

Managers of AIFs restricted to qualified investors that do not meet certain de minimis requirements to qualify as managers of collective assets (AUM ≤ CHF100 million (including assets acquired through leveraged financial instruments) or AUM ≤ CHF500 million (excluding leveraged financial instruments)) require authorisation as portfolio managers. In this case, ongoing supervision is carried out by a FINMA-approved supervisory organisation.

In order to protect the interests of investors and the fund, managers of collective investment schemes (including AIFs) owe a fiduciary duty of loyalty and due diligence. In addition, they are subject to a duty of disclosure extending to investment risks, fees and costs, compensation received by third parties and membership and creditors’ rights. Information is usually publicly disclosed in marketing materials (prospectus, KID), in the fund regulations and/or in annual or semi-annual reports.

There is no specific tax regime applying to fund management companies. They are subject to ordinary corporate income and capital taxes.

Funds established outside Switzerland are usually managed by a Swiss legal entity (“Management Company”) without creating a significant permanent establishment risk for the fund. The services of the Management Company must be remunerated at arm’s length.

The fund may become a Swiss withholding tax subject if its substance is predominantly in Switzerland and certain “safe harbour” criteria are not met. The key criteria are the following:

• The board or the governing body of the fund must consist of a majority of persons not domiciled in Switzerland.
• The corresponding meetings must be held outside Switzerland.
• This body must be responsible for monitoring the business activities and legal compliance of the fund.

Furthermore, the custodian bank must have its registered seat outside Switzerland (while certain technical tasks may be delegated to Swiss parties).

Carried interest is generally subject to ordinary personal or corporate income tax in Switzerland.

General

While the overall management of the investment fund cannot be outsourced, the fund management may delegate investment decisions as well as specific tasks to third parties, provided this serves the interests of efficient management. However, certain restrictions and non-transferable tasks as well as regulatory requirements must be observed (see below). In particular, fund management companies have to comply with FINMA’s Circular 2018/3 on outsourcing.

Restrictions to Certain Transferable Tasks

Certain tasks can be transferred, but only within Switzerland or within an international group. For example, the determination of the issue and redemption prices and the keeping of accounts can only be delegated to third parties in Switzerland (see 3.8 Local Substance Requirements).

Furthermore, the fund management company may only delegate investment decisions to duly authorised managers for collective assets in Switzerland or abroad. Where foreign law requires an agreement on co-operation and the exchange of information with the foreign supervisory authorities, investment decisions may only be delegated to managers of collective assets abroad if such an agreement is in place between FINMA and the foreign supervisory authorities relevant for the respective investment decisions. This is generally the case with EU member states under the EU Directive on Alternative Investment Fund Managers of 8 June 2011 (AIFMD), and FINMA has signed agreements with these states on the supervision of AIF managers.

In the case of collective investment schemes for which the facilitated offering of shares exists in the European Union based on a treaty, investment decisions may not be delegated to either the custodian bank or any other companies whose interests may conflict with those of the manager of collective assets or the fund management company or the investors.

Non-Transferable Tasks

Fund management companies are not allowed to delegate tasks that need to be within the decision-making remit of the body responsible for management or for governance, supervision and control. This means, in particular, that the overall management, supervision and control by the board of directors, central management functions of the executive board and functions involving strategic decisions may not be outsourced. Similarly, decisions to enter into or terminate business relationships may not be outsourced.

In addition, when outsourcing, it should always be ensured that the company continues to be effectively managed from Switzerland. Therefore, the management of the investment fund and certain related tasks such as the valuation of investments (not just their validation) or the decision to issue units cannot be outsourced (see 3.8 Local Substance Requirements).

Regulatory Requirements

In particular, the following key regulatory requirements apply in case of a delegation of material tasks:

• Written contracts are necessary for any delegation, which, inter alia, regulate the responsibilities and accountabilities, authorisation to further delegate, accountability of the third party, as well as the control and instruction rights of the fund management company.
• The delegation needs to be notified to FINMA and may require FINMA approval (depending on the significance of the delegation).
• The appointed third party must possess the necessary skills, knowledge and experience and have the required authorisations.
• The fund management company must possess the necessary human resources and expertise to select, instruct, monitor the appointed third party and control the risks associated with the outsourcing.
• The fund management company must ensure that it has the necessary rights to issue instructions or to exercise control over the third party.
• The fund management company has to lay down in its organisational principles the tasks delegated as well as details of the possibility of sub-delegation.
• The fund management company must ensure that it, its internal auditors, the audit firm, the supervisory organisation and FINMA can inspect and review the delegated task.
• Transparency requirements also exist, such as disclosing the third parties to which tasks have been delegated in the fund prospectus. If third parties are entrusted with administrative and decision-making tasks, their expertise must also be disclosed in the fund prospectus.
• When delegating tasks to an agent, it must be ensured that the delegation does not result in a conflict of interest between the fund management company and the agent that could be to the detriment of investors.

Similar rules apply for persons with a FINMA licence as managers of collective assets. In particular, a manager of collective assets must carry out the portfolio and risk management of at least one collective investment scheme or the assets of at least one occupational pension scheme itself.

The fund management company must be a company limited by shares that has its registered office and head office in Switzerland. It must effectively be managed from Switzerland. The head office of the fund management company is deemed to be in Switzerland if the following conditions are met:

• The non-transferable and inalienable duties of the board of directors in accordance with the Swiss Code of Obligations are performed in Switzerland;
• For each of the investment funds managed by the fund management company, at a minimum the following tasks are performed in Switzerland:
1. decisions on the issue of units;
2. decisions on investment policy and on the valuation of investments;
3. valuation of investments;
4. determination of issue and redemption prices;
5. determination of distributions of profit;
6. determination of the content of the prospectus and the key information document, of the annual or the semi-annual report, as well as of further publications intended for investors; and
7. keeping of accounts.

Furthermore, the fund management company must be able to be represented by one person who is resident in Switzerland. This person must be a member of the board of directors or an executive officer. In addition, the persons entrusted with the management of the fund management company or the management of the FINMA-licensed manager of collective assets must be resident in a place from which they can effectively exercise such management. This generally means that the members of management must live within commuting distance of the head office (see also 2.8 Local/Presence Requirements for Funds).

In Switzerland, mergers, sales, restructurings, or similar transactions involving a fund management company or its parent company are subject to a comprehensive regulatory framework designed to protect investors and ensure the stability of the financial system. Below are the key regulatory and investor approval requirements that must be considered.

Regulatory Approval

FINMA approval

Notification and approval

Fund management companies must notify FINMA of any changes in the facts on which its authorisation is based. This means that the fund management company is obliged to notify FINMA of any significant changes in control. Depending on the nature and extent of the transaction, approval from FINMA may be required. This ensures that the transaction does not adversely affect the fund manager’s ability to meet regulatory obligations and maintain operational stability.

In addition, each person must notify FINMA before directly or indirectly acquiring or disposing of a qualified participation in a fund management company. This mandatory notification also applies if a qualified participation is increased or reduced in such a way as to reach, exceed or fall below the thresholds of 20%, 33% or 50% of the share capital or votes. Persons who directly or indirectly hold at least 10% of the share capital or votes or who can significantly influence its business activity in another manner are deemed to be qualified participants in a fund management company.

Assessment of fitness and properness

FINMA will assess the fitness and properness of new owners or controllers who are qualified participants. This includes evaluating their financial soundness, reputation, and ability to comply with regulatory requirements.

COMCO approval

The transaction may require notification to and approval from the Swiss Competition Commission (COMCO). This is particularly relevant for mergers or acquisitions that involve an undertaking that has been held to be dominant in a market in Switzerland.

Investor Approvals

The fund’s constitutional documents may contain provisions requiring investor consent for significant changes in control of the fund management company. Fund managers must review these documents to determine the specific approval requirements and obtain the necessary consents from investors.

Shareholder Approval

The Swiss Merger Act requires a two-thirds majority of the votes represented at the shareholder meeting and the absolute majority of the par value of the shares represented at the shareholders’ meeting for the approval of a merger. However, the fund management company’s articles of association may stipulate a higher threshold.

Similar rules apply for persons with a FINMA licence as managers of collective assets.

There are no specific regulatory requirements or limitations in connection with the use of artificial intelligence, predictive data or big data for investment purposes or for operational/compliance purposes. The general rules of the Federal Act on Data Protection of 25 September 2020 (DPA) apply. However, FINMA expects supervised institutions such as managers of collective assets and fund management companies to manage the risks associated with the use of AI, in particular in the following areas:

• Governance and responsibility: FINMA expects institutions to clearly define roles and responsibilities and implement risk management processes, ensuring that decisions cannot be delegated to AI or third parties and that all parties involved have sufficient expertise in AI.
• Robustness and reliability: Institutions need to ensure that AI applications are based on high-quality data, are robust, reliable, and open to critical questioning.
• Transparency and explicability: The use of AI applications must be transparent, and their results must be explicable and verifiable.
• Non-discrimination: To avoid unjustified discrimination, personal data processed by AI applications must be representative.

At the end of August 2023, the Swiss Federal Council launched a consultation on a new federal law on the transparency of legal entities and the identification of beneficial owners. Following the conclusion of the consultation period, the Swiss Federal Council adopted the corresponding dispatch on 22 May 2024, to be submitted to Parliament. According to the draft legislation, fund management companies will be subject to the new act and, if enacted, will be required to comply with new duties, including entering information on their beneficial owners in a new federal register. However, it remains uncertain when, or if, the draft legislation will be enacted.

Investor appetite for AIFs in Switzerland is strong, particularly in segments like private equity, hedge funds, real estate, and infrastructure. Swiss investors have historically valued stability and long-term growth, and many view alternative investments as a way to diversify their portfolios, hedge against inflation, and seek higher returns, especially in a low interest rate environment. There is increasing interest in ESG and sustainable investment strategies as well.

Common types of investors for funds in Switzerland are:

• Institutional investors: Swiss pension funds, insurance companies, and family offices are among the largest investors in AIFs.
• HNWIs: Switzerland has a large number of wealthy individuals who actively invest in alternative assets. They are often more flexible and willing to explore niche strategies such as hedge funds or venture capital funds.
• Private banks: Given Switzerland’s prominent private banking sector, many funds are marketed to ultra high net worth clients (UHNWIs) and institutions through private banks, which act as intermediaries.

Challenging types of investors for funds in Switzerland are:

• Retail investors: Swiss regulations, particularly under the FinSA and CISA, make it more challenging for retail investors to access AIFs, as many such products are reserved for qualified or institutional investors.
• Conservative institutional investors: Some Swiss pension funds and traditional institutions have strict risk management policies and a preference for low-risk investments, making them less inclined toward more speculative or highly leveraged AIFs, like certain hedge funds or venture capital.

While side letters are not expressly prohibited under Swiss law, their use raises delicate considerations, particularly in light of the rules of conduct, in particular the duty of loyalty and the principle of equality of treatment that applies to investors in Swiss AIFs. Fund managers must always navigate this principle carefully when crafting side letters.

If certain investors receive benefits like lower fees without a solid rationale, this could be seen as a breach of the rules of conduct – particularly the duty of loyalty. Such violations could trigger civil liability or administrative sanctions.

Swiss law does not require offering side letter rights to certain investors and no special approval is required for side letters.

In short, side letters can be a useful tool, but they require careful handling to avoid running afoul of Swiss legal standards.

Investors of AIFs

AIFs can generally be marketed to all investors, both Swiss and foreign. Investors of AIFs may be natural or legal persons, as well as general and limited partnerships. The CISA distinguishes between qualified and retail (non-qualified) investors, while the following investors are deemed to be qualified investors:

• supervised financial intermediaries, which comprise banks, securities firms, fund management companies, managers of collective assets and collective investment schemes (including AIFs);
• supervised insurance companies;
• foreign financial intermediaries or insurance companies subject to prudential supervision;
• central banks;
• public bodies and occupational pension funds or other occupational pension institutions with professional treasury management;
• national and supranational public entities with professional treasury management;
• companies with professional treasury management;
• large companies;
• private investment structures with professional treasury management set up for HNWIs; and
• HNWIs or private investment structures set up for them who opted to be treated as professional clients under the FinSA.

Retail investors for whom a person provides portfolio management or investment advice under an ongoing portfolio management or investment advice agreement are also considered qualified investors, provided that such person is (i) a supervised financial intermediary, which comprises banks, securities firms, fund management companies, managers of collective assets and collective investment schemes (including AIFs); (ii) a foreign financial intermediary subject to prudential supervision; or (iii) a supervised insurance company.

Restriction of Investors’ Eligibility

Local investors may invest in Swiss AIFs for which they are eligible, depending on their qualification under CISA and FinSA. Open-ended AIFs are generally open to all investors. However, the fund regulations may restrict investor eligibility to qualified investors only, in particular in order to benefit from exemptions from certain provisions of the CISA. Likewise, only qualified investors are permitted to invest in AIFs established as LPCIs or L-QIFs.

Swiss AIFs

The marketing of AIFs from or into Switzerland is not subject to regulatory approval or authorisation. However, it may qualify as a financial service under FinSA and must therefore comply with the rules on the provision of financial services contained therein, including rules on conduct (eg, duty to inform, assessment of appropriateness and suitability of financial services, documentation and accountability), organisational measures, the duty to register client advisers in a register of advisers and the duty of financial service providers to affiliate with an ombudsman’s office.

Furthermore, AIFs must produce and publish a prospectus when making a public offer or when admitting their units to trading on a trading venue in Switzerland (see 2.3 Disclosure/Reporting Requirements). The prospectus and any amendments thereto must be filed with FINMA without delay. In contrast, other marketing material (including the KID) does not require regulatory filing or approval.

Advertising for AIFs must be clearly labelled as such. It must also refer to the relevant prospectus and KID (and indicate where they can be obtained) and be consistent with the detailed information contained therein. Advertising material, the prospectus and the KID as well as the fund name of “other funds for alternative investments” must contain a notice referencing the special risks involved in alternative investments (warning clause). This warning clause requires the approval of FINMA and must be placed on the first page of the fund regulations, the prospectus and the KID. Similarly, if an L-QIF engages in alternative investments, reference must be made to the particular risks associated with these investments in the advertising material, as well as in the designation and the fund regulations.

Foreign AIFs

Foreign AIFs may be offered (exclusively) to qualified investors in Switzerland without regulatory approval or authorisation (see also 2.2 Regulatory Regime for Funds). Accordingly, foreign AIFs offered to retail investors in Switzerland must obtain prior approval from FINMA. In any case, foreign AIFs must generally adhere to the marketing and advertising rules of Swiss law described above.

Compensation

With regard to compensation, fund management companies have to comply with various regulations. In particular, they have to comply with FINMA’s circular 2010/1 “Remuneration schemes”. When compensating personnel for sales efforts, the fund management company must adhere to the applicable principles laid out in the FINMA circular. Fund institutions are required to implement a salary and remuneration policy that is commensurate with their size and risk profile, and which motivates their employees to promote the long-term success of the collective investment schemes. This policy must align with the minimum standards set out in the FINMA circular. In particular, they must refrain from providing any financial incentive for conduct that might damage the investors’ interests. This includes, for example, bonus payments based on the volume of exchange transactions carried out.

In this context, it is important to note that in relation to services delegated to third parties (eg, delegation of distribution), fund management companies must waive the compensation owed to them in accordance with the fund regulations, company agreement, investment regulations or discretionary management agreement where such compensation is not used for the payment of the services rendered by such third parties.

Placement Agent

It is relatively common for Swiss fund management companies to hire placement agents, especially for firms with smaller investor relation teams. Fund marketing may constitute a financial service under the FinSA, and placement agents must therefore comply with various regulatory requirements when providing financial services in Switzerland (see 4.4 Rules Concerning Marketing of Alternative Funds).

Swiss resident individual and corporate investors are subject to private income tax and corporate income tax, respectively, on the income of contractual funds, SICAVs and LPCIs. The taxable event is the time of distribution and/or the time of reinvestment of the income. The distribution of paid-in capital is not subject to taxation at the level of domestic investors (return of capital). Further, distributions of income from direct ownership of immovable property are not subject to private or corporate income tax, while capital gains, provided they are separately disclosed in the financial statements of the fund, are not subject to income tax for private individual investors. Swiss resident individual and corporate investors can reclaim Swiss withholding tax deducted and remitted by the fund based on Swiss law (see 2.4 Tax Regime for Funds).

SICAFs are taxed like a corporation. Hence, Swiss resident individual and corporate investors of SICAFs are taxed in the same way as holding an investment in a capital corporation.

In principle, contractual funds, SICAVs and LPCIs are not considered resident persons under the double tax treaties of Switzerland. However, Switzerland has concluded intergovernmental agreements with certain EU countries, the UK, Australia and Canada under which contractual funds, SICAVs and LPCIs may – on behalf of investors resident in Switzerland – claim a full or partial refund or a relief at source of foreign withholding tax.

SICAFs are taxed like a corporation and do therefore generally qualify for benefits under the double tax treaties of Switzerland.

FATCA

The intergovernmental agreement between Switzerland and the USA on co-operation to simplify the implementation of FATCA (the “FATCA Agreement”) is a Model 2 IGA. The implementing laws of Switzerland include the Federal Act on the Implementation of the FATCA Agreement as well as the assessments published by the Swiss FATCA Qualification Board, which deals with questions that arise in connection with the interpretation of the FATCA Agreement.

CRS

Switzerland has concluded a multilateral agreement with the EU on the international automatic exchange of information in tax matters (the AEOI Agreement), which applies to all EU member states. Further, Switzerland has concluded a multilateral competent authority agreement on the automatic exchange of financial account information (MCAA), and bilateral AEOI agreements with a number of other countries, most of them on the basis of the MCAA. The implementing laws of Switzerland include the Federal Act on the International Automatic Exchange of Information in Tax Matters, as well as the guideline “Standard for the Automatic Exchange of Information of Financial Accounts – Common Standard of 8 January 2021” and the Q&A published by the Swiss AEOI Qualification Board.

Switzerland’s AML and KYC regime is primarily based on the Anti-Money Laundering Act (AMLA), which was recently revised in March 2021 (in force since January 2023). The AMLA is supplemented by the Anti-Money Laundering Ordinance (AMLO) and the FINMA Anti-Money Laundering Ordinance (FINMA-AMLO). These regulations provide, inter alia, for the following obligations of financial intermediaries, including AIFs and their managers:

• Due diligence: Financial intermediaries must verify the identity of their customers and identify the beneficial owner. Additional due diligence and monitoring obligations are triggered for high-risk customers (such as politically exposed persons) and high-risk transactions or business relationships.
• Duty to report: If money laundering is suspected, the financial intermediary must immediately file a report with the Money Laundering Reporting Office Switzerland.
• Organisational measures: Financial intermediaries must organise themselves properly and take the necessary measures to prevent money laundering, in particular by ensuring that their staff receive adequate training and that checks are carried out. They must also appoint one or more qualified persons to act as an internal anti-money laundering unit (see also 2.11 Rules Concerning Service Providers).
• Duty to keep records: Financial intermediaries must keep records of business relationships and transactions for at least ten years.

Compliance with these obligations is supervised and enforced by FINMA. Investment companies that do not fall within the scope of the CISA (see 2.2 Regulatory Regime for Funds) must be affiliated to a self-regulatory organisation, which is responsible for supervision and enforcement in this case.

In addition, Switzerland is committed to international co-operation in the fight against money laundering, in particular through active participation in the Financial Action Task Force. Furthermore, money laundering is a criminal offence under the Swiss Criminal Code and a breach of the reporting obligation is punishable by a fine under the AMLA.

Managers and funds must comply with Swiss statutory requirements governing data protection and data security. These apply to managers and funds as they apply to other businesses processing personal data. There are no specific data protection rules applicable to managers and funds in respect of their dealings with investors. The DPA governs the processing of personal data of individuals. Data relating to legal entities does not constitute personal data in the scope of the DPA.

In addition, supervised institutions (including AIFs and fund managers) have a general duty to report to FINMA any incident that is of substantial importance to the supervision. Pursuant to FINMA Guideline 05/2020 of 7 May 2020, supervised institutions must inform FINMA immediately (within 24 hours of detection and initial assessment of criticality) via their (key) account manager of any cyber attacks on their critical functions. A report must be submitted to FINMA within 72 hours, including the critical functions, business processes or assets affected, the type of attack and the administrative, operational and/or technical countermeasures with their expected time of effectiveness.

Revision of the AMLA

At the end of August 2023, the Swiss Federal Council launched a consultation regarding the revision of the AMLA. Following the conclusion of the consultation period, the Swiss Federal Council adopted the corresponding dispatch on 22 May 2024, to be submitted to Parliament. In the present context, it is particularly noteworthy that, under the revised AMLA, financial intermediaries will be required to implement organisational measures to prevent the violation or circumvention of sanctions under embargo legislation. However, it is not yet clear whether and when the draft legislation will be enacted.

FINMA’s Draft Circular on the Rules of Conduct under FinSA

On 15 May 2024, FINMA published a draft of a new FINMA circular on the rules of conduct under the FinSA. In particular, the draft circular specified the information requirements set out in the FinSA and the disclosure requirements with regard to conflicts of interest. The new circular is expected to enter into force in early 2025.

FATCA

Switzerland and the USA signed a new FATCA Agreement on 27 June 2024, which provides for a switch to a Model 1 IGA. The implementing laws in Switzerland are expected to come into force on 1 January 2027.

CRS

Subject to parliamentary approval, Switzerland intends to implement the Crypto-Asset Reporting Framework (CARF) as of 1 January 2026.