Switzerland is preparing to step up competition with Luxembourg as a fund domicile for alternative investment funds. The industry, however, is not convinced that the Swiss alternative can fully match the international success of Luxembourg Raifs.
From next month, the Swiss will allow management companies to create a new type of fund known as L-QIF that will compete with the successful regime for Reserved Alternative Investment Funds, or Raifs, first made possible in the Grand Duchy in 2016.
The Limited Qualified Investor Fund, as the L-QIF will formally be known, will be available to qualified investors from 1 March 2024, the Bern-based government confirmed on 31 January. A Swiss finance ministry explainer on the legal changes governing these funds includes multiple references to Luxembourg and makes clear certain specific differences.
“With the L-QIF, a fund category is also being introduced in Switzerland that already existed in other European countries in various forms since the implementation of the AIFMD,” said the finance ministry, referring to the EU’s globally aligned framework for alternative investments. “The Swiss fund centre is therefore catching up with its European peers with the L-QIF.”
‘Modelled on Luxembourg’
The Swiss ministry clearly stated that its L-QIF has been inspired by Luxembourg’s Raif regime. “In terms of content, the L-QIF is modelled on the Luxembourg Raif, insofar as this is permitted by the Swiss legislative framework for collective investment schemes,” it said.
Although 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, the Swiss asset management industry noted that this new Swiss fund category won’t be as flexible as its Luxembourg counterpart.
Indeed, an L-QIF will be bound by more stringent investment restrictions than a Raif, according to the Swiss ministry’s explainer. But just like in Luxembourg, the Swiss counterpart can also opt for liquidity management tools such as side pockets.
Swiss industry disappointed
The Asset Management Association Switzerland, or Amas, has strongly advocated the introduction of the L-QIF in Switzerland but appears disappointed with the end result. “The bill does not fully achieve the original objective of liberalising the structure and thus creating a competitive alternative to the Luxembourg” Raifs, it said in a recent statement. In December, before the adoption of the new law, Amas referred to L-QIF as “a genuine Swiss alternative to foreign fund competition.”
Just like a Raif, an L-QIF can be established swiftly and cost-effectively without the need of the national regulator. Instead, the authorised management company, or AIFM, handling the fund is subject to the regulator’s scrutiny. In Switzerland that is Finma, like CSSF in Luxembourg.
The success of Luxembourg Raifs in recent years is also attracting interest elsewhere in Europe. Investment Officer understands that the Irish finance ministry for example is currently studying the Luxembourg market and is considering launching an Irish alternative to the Luxembourg vehicle.