Collective Investment Scheme for Accredited Investors

publication post 2 shutterstock_313401968

01 May 2012 Collective Investment Scheme for Accredited Investors

 Funds for Accredited Investors Switzerland
(Qualified Investment Fund)
Luxemburg (Specialized Investment Fund) The Cayman Islands (Exempted Fund) Irish (Professional Investors Funds)
Regulatory Regime Regulated by the Swiss Financial Market

Supervisory Authority  (“FINMA”)

Regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) Regulated by the Cayman Islands Monetary Authority (“CIMA”) The Irish Financial Services  Regulatory Authority (the “IFSRA“)
Approval Process Required prior launching the Fund:

             The application is deemed to be  approved as of its receipt by the FINMA for (i) Securities Funds (UCITS-type), (ii) Real Estate Funds and (iii) Other funds for  traditional investments

             The application is deemed to be  approved after four weeks of its receipt by the FINMA for Hedge Funds

The FINMA may request amendments to the structure within 3 months as of the end of the deadlines above.

The deadlines above apply only if the Fund documents meet the required standard agreed by the FINMA

No prior authorization required. However, the legal documents, choice of custodian and directors must be submitted to the CSSF no later than one month after the set-up of the Fund Required prior launching the Fund.
Issued within one week upon filing with
CIMA of the following documents:
prospectus, registration form MF1, letter
of consents of the auditors and
administrator, evidence of incorporation,
registration fee
In order to obtain a PIF License in
Ireland, an application must be
made to the IFSRA containing the
following information:1. the name of the scheme;
2. a statement of the general
nature of the investment objectives
of the scheme;
3. the prospectus;
4. the full name and address of
the promoter of the scheme.
Sufficient information concerning
the promoter to enable the
Financial Regulator to be satisfied
as to its expertise, integrity and
adequacy of financial resources.
This information should include,
inter alia, details of shareholders,
latest audited accounts and details
of overseas regulatory status (if
any);
5. where a scheme proposes to
employ the services of a
management company some
information is to be supplied in
respect of that company:
6. the full name and address of
the proposed trustee;
7. the full name and address of
the proposed investment adviser, if
it is different from the management company, investment company or general partner and a copy of the relevant agreement with the adviser. Sufficient information concerning the investment adviser to enable the Financial Regulator to be satisfied as to its expertise, integrity and adequacy of financial resources. This information should include, inter alia, details of shareholders, latest audited accounts and details of the overseas regulatory status (if any); 8. the full name and address of the auditor;9. the full name and address of any third party which has been contracted by the scheme, or management company acting for the scheme, to carry out its work and copies of the relevant agreements with the third party. Sufficient information concerning any third party involved to enable the Financial Regulator to be satisfied as to its expertise, integrity and adequacy of financial resources. This information should include, inter alia, details of shareholders, latest audited accounts and details of overseas regulatory status (if any); and10. such additional information as the Financial Regulator may specify in the course of determining individual applications.Further information will also need to be supplied with the application depending upon the structure chosen. (See NU Notice 4.5).
Structure of the Fund Open-ended Contractual Fund (fonds
commun de placements) between the investor and the fund management company/custodian bank or Company with variable capital (“SICAV”)
Contractual Mutual Fund (fonds commun de placements) or SICAV. The SICAV may be a joint-stock company, a limited liability company, a partnership limited by shares or a cooperative company Open-ended Exempted Company or Unit Trust or Partnership. For example, an exempted company takes 24 hours to incorporate once the incorporation documents are filed Irish PIFs may be established as:

 

  • unit trusts, under the Unit Trusts Act, 1990;

 

  • investment companies under the Companies Act, 1990 Part XIII;
  • investment limited partnerships under the Investment Limited
    Partnerships Act, 1994; or
    • common contractual funds
    under the Investment Funds,
    Companies and Miscellaneous
    Provisions Act, 2005.
Minimum Capital Company Shares:
The minimum capital at launch is as
follows:
 SICAVs managed by third parties:
CHF 250,000 in company shares.
 Self-managed SICAV: CHF
500,000 in company shares.
 Contractual Fund: no minimum
capital at launch, but the Fund must
appoint a Fund Management
Company with a minimum share
capital of CHF 1,000,000.
Investor Shares:
In each case, the assets of the Fund
must reach CHF 5,000,000 within one
year from launch.
EUR 1,250,000 to be reached within one
year following the issuance of the license
by the CSSF
N/A Specific rules.
Eligible Assets There are three categories of open ended
Investment Funds (other than real estate).
The following investment restrictions
apply for the following Funds:Securities Funds (UCITS-type):Permitted investments pursuant to EU
UCITS III Directive: Securities: Liquid securities and non-securitized rights issued on a large scale Liquid, derivative financial instruments, not just for hedging purposes but also for investment purposes, possible on underlyings that are permitted by the Fund regulations (e.g. on financial indices, interest rates, exchange rates, credits or currencies) Units in collective investment schemes (target funds), that do not invest more than 10% of their assets in other target funds Liquid money market instruments that have a value that can be accurately determined or are issued by a selected group of issuers (SNB, ECB, EIB, OECD, etc.) Sight and term deposits and claims from repurchase transactions with maturities up to 12 months More extensive use of derivatives possible with a Value-at-Risk approach (model based approach,
„complex UCITS‟.Other Funds For TraditionalInvestments: Traditional investment strategies of all kinds, without having to observe the investment restrictions applicable for securities funds. Permitted investments: include securities, units in collective investment schemes, money market instruments, sight and term deposits, precious metals, derivatives and structured products Derivatives may also be used for investment purposes. Flexible amendment clause enables the FINMA to make additional deviations from the permitted investments, investment techniques and risk distributionHedge Funds:Almost no restriction in terms of the investment structure and universe. Permitted investments include securities, units in collective investment schemes (e.g. single hedge funds), money market instruments, sight and term deposits, precious metals, derivatives including structured products, commodities as well as other assets and rights. Additional leverage possible
Unrestricted (in principle, any type of
assets and investment strategies are
acceptable)
Unrestricted (in principle, any type of
assets and investment strategies are
acceptable)
Wide varieties of assets.
Investment Restrictions and Risk Spreading Securities Funds (UCITS-type):

 No investments in precious metals,
precious metals certificates,
commodities and commodity paper
 No short sales
 Voting rights limited to 10% of the
total voting rights
 Exposure per issuer in principle
10% of the Fund‟s Asset
 Overall derivatives exposure 100%
of the Net Fund‟s Asset
 Borrowing 10% of the Net Fund‟s
Asset
 Overall exposure with borrowing
210% of the Net Fund‟s Asset
 Pledging / transferring the
ownership of collateral 25% of the
Net Fund‟s Asset
 Investment per target fund 20% of
the Net Fund‟s Asset
 Investment in non-EU-compatible
target funds 30% of the Fund‟s
Asset

Other funds for traditional investments:

 Borrowing 25% of the Net Fund‟s

Asset

 Pledging / transferring the ownership of collateral 60% of the

Net Fund‟s Asset
 Overall exposure 225% of the Net

Fund‟s Asset

 Short selling of securities Permitted. Limited

Hedge Funds:

 Borrowing 50% of the Net Fund‟s

Asset

 Pledging / transferring the ownership of collateral 100% of the

Net Fund‟s Asset
 Overall exposure 600% of the Net

Fund‟s Asset

 Short selling Permitted. Type/scope to be determined in the fund regulations

A maximum of 30% of the net asset in similar securities issued by the same issuer unless (i) the issuer is subject to equivalent diversification rules; or (ii) the issuer is an OECD Member State or one of its public institutions Short selling, derivatives and OTC transactions are subject to similar risks spreading rules No regulatory restrictions Full list of investment restrictions

apply (see NU 13.10).

PIFs are subject to the following investment restrictions in respect of direct investments:

PIFs are not permitted to acquire shares carrying voting rights which would enable them to exercise significant influence over the management of issuing bodies (this restriction does not apply to holdings in underlying funds);

PIFs structured as investment companies must comply with the principle of “spreading investment risk” as required under section 253(2)(a) of the Companies Act, 1990 Part XIII. It is left to the discretion of the Board of Directors to determine actual diversification with reference to particular strategies;

PIFs may invest up to 100% of assets in underlying regulated or unregulated funds but no more than 20% of net assets in a single underlying unregulated fund and no more than 40% of net assets in a single regulated fund where, in this context, “regulated” means a fund which provides an equivalent level of investor protection to that provided under Irish laws, regulations and conditions governing Irish PIFs;

Investment in an underlying fund in excess of 40% of net assets will be treated as a feeder type investment. PIFs may only invest on a feeder basis into “regulated” masters; and when transacting over-the-counter in circumstances where collateral is being passed by the PIF outside the Irish trustee / custodian’s custodial network, PIFs are generally required to deal with counterparties with a minimum credit rating of A2/P2 (or A1/P1 where the PIF’s exposure to such a counterparty may exceed 40% of its net asset value).

 

Currently a PIF in the form of an investment company (as opposed to a unit trust, common contractual fund or limited partnership) is limited to this 40% figure because of the statutory obligation to spread its investment risk to which it is subject.

 

For PIFs, borrowing and leverage are generally restricted to 50% of net asset value but limits in excess of this level are permitted on a case-by-case basis.

 

A professional investor FoHF may invest up to 100% of its assets in regulated or unregulated funds, subject to a maximum of 20% of net assets in any one unregulated fund and a maximum of 40% of net assets in any one regulated fund. In this context, the Financial Regulator would consider an underlying fund to be “unregulated” where it does not provide an equivalent level of investor protection to that provided under Irish laws, regulations and conditions governing Irish PIFs.

 

PIF funds of funds may only invest a maximum of 10% of net assets in aggregate in units of other funds of funds and may only invest in a feeder fund if such feeder fund provides the only means of accessing the underlying fund and the feeder fund and master fund act, in effect, as a singular structure.

The PIF‟s prospectus must
disclose the implications of the
fund of funds investment policy to
investors, including the fact the
fees may arise at multiple levels,
the lack of transparency that may
arise as well as the potential lack of
liquidity.
If the PIF intends to invest in
unregulated funds, then it must
also disclose that such funds will
not provide a level of investor
protection equivalent to funds
authorised under Irish laws and
subject to Irish regulations and
conditions.

Segregated Sub-Funds Yes Yes Yes Yes
Eligible Investors  

Accredited Investors:
(i) Financial Intermediaries subject to
surveillance such as banks,
securities dealers, fund
management companies, assets
manager of Swiss collective
investments.
(ii) Insurance Companies subject to
surveillance.
(iii) Public Corporations, Pension
Funds and Other Corporations with
professional treasury management.
(iv) High Net Worth Individuals on
condition that they own, directly or
indirectly, net financial assets in
the amount of CHF 2,000,000 or
more. Financial assets include
bank deposits, fiduciary deposits,
securities, derivatives, precious
metals and redeemable life
insurance policies. Financial assets
do not include real estate, social
benefits pension money. In
situations where the financial
intermediary manages less than
CHF 2,000,000 in financial assets,
the investor is required to confirm
in writing that his global net
financial assets amount to at least CHF 2,000,000. In case of doubts, the offeror has a duty of verification.

(v) Asset Pooling Vehicles to the extent they hold a net amount of CHF 2,000,000 in financial assets.
(vi) External Asset Managers and Managed Clients to the extent that have entered into a discretionary management agreement and that
(i) the asset manager is subject to the Swiss Anti-Money Laundering Act of 10 October 1997, (ii) the asset manager is governed by the Code of conduct enacted by a professional organization which is recognized by the regulator as minimum standard and (iii) the discretionary agreement meets the recognized standards enacted by a professional organization

 

Accredited Investors:
(i) Institutional Investors
(ii) Professional Investors
(iii)Any other investors (x) who
declares in writing that she is
accredited and invests at least EUR
125,000 in the Fund or (y) who
receives a certificate by a financial
institution certifying she has
sufficient experience in high risk
investmentsIf the Fund is distributed in Switzerland the
Fund should only target Investors that are
Accredited according to the Luxembourg
definition, but also the Swiss definition
(see Swiss definition)
Sophisticated and high-net-worth
investors who are capable of
understanding the risks and rewards
associated with the Fund and are able
to withstand any adverse financial
consequencesIf the Fund is distributed in Switzerland
the Fund should only target Investors
that are Accredited according to the
Cayman Islands definition, but also the
Swiss definition (see Swiss definition)
To qualify as a Professional
Investors Fund, a scheme must
have a minimum subscription
requirement of EUR 125,000 or its
equivalent in other currencies.The aggregate of an investor‟s
investments in the sub-funds of an
umbrella scheme can be taken into
account for the purposes of
determining this requirement. The
amounts of subsequent
subscriptions from investors who
have already subscribed the
minimum subscription of EUR
125,000 are unrestricted. An
exemption from the minimum
subscription requirement can be
granted to the following: (a) the
management company or general
partner; (b) a company appointed
to provide investment management
or advisory services to the scheme;
(c) a director of the management
company, investment company or
general partner or a director of a
company appointed to provide
investment management or
advisory services to the scheme;(d) an employee of the management company, investment company or general partner, or an employee of a company appointed to provide investment management or advisory services to the scheme, where the employee:

  • is directly involved in the investment activities of the scheme, or

 

  • is a senior employee of the company and has experience in the provision of investment management services.
Minimum Initial Investments No minimum EUR 125,000 (or the equivalent) per USD 100,000 or the equivalent EUR 125,000 (or the equivalent) investor or less if the investor receives a certificate by a financial institution certifying she has sufficient experience in high risk investments
Reporting Semi-Annual and Annual reports to be

filed with the FINMA

In the context of Qualified Investment Funds, the FINMA can waive the obligation to file a semi-annual report

Annual report to be filed with the CSSF.

No obligation to produce semi-annual report

Annual report to be filed with CIMA All Irish funds must produce annual audited financial statements which  must be filed with the FinancialRegulator within 4 months of the period end. Retail investor funds and PIFs must also produce half-
yearly unaudited financial statements which must be filed
within 2 months of the period end.
Service Providers The Custodian Bank must be a bank
approved by FINMA. In the context ofQualified Investment Funds, a foreign prime broker can undertake most of the tasks of the Swiss custodian bank (subject to prior approval by the FINMA)The central administration and the registered office must be in SwitzerlandThe auditors must be approved by the
FINMAInvestment manager must be approved
by the FINMA. In the context of Qualified
Investment Funds, the FINMA can waive
this requirement
The Custodian Bank must be a Luxembourg-based bank or an EU branch approved by the CSSF

The central administration and the registered office must be in Luxembourg

The auditors must be Luxembourg-based

Investment managers do not need to be approved by the CSSF. There is no restriction as to the location of the
investment manager

No specific requirements are defined in
terms of registered prime broker

No regulatory restriction in the Cayman Islands on the choice of the investment manager, administrator, custodian, broker. The auditors must be approved by CIMA.

The location of the service providers must be carefully selected to avoid regulatory and tax consequences in other jurisdictions

Administrator

PIFs, as well as all other investment funds in Ireland, are required to appoint an Irish Administrator (or an Irish management company) which will perform certain minimum administrative activity in Ireland such as the calculation of the net asset value of the fund and its

dealing price, the maintenance of
the books and records of the fund,
etc.

Investment Manager:
The investment manager for the
PIF must be approved by the
Financial Regulator. Acceptable
investment management firms
include those which are regulated under MiFID and non-EU firms
regulated by a supervisory
authority which is recognised by the IFSRA..
Custodian:
The assets of Irish regulated funds must be entrusted to a custodian bank for safe-keeping. Such custodian must be a credit
institution authorised in Ireland, an
Irish branch of an EU credit
institution or an Irish incorporated
company which is wholly owned by
an EU credit institution (or
equivalent from a non-EU
jurisdiction) provided that the
liabilities of the Irish company are
guaranteed by its parent.
Promoter:
The IFSRA will only accept
promoters who are of good repute,
have sufficient financial resources
and adequate experience and a
proven track record in collective
investment schemes. The promoter
must be regulated by a supervisory
authority recognized by the IFSRA.

Public Offering  

Yes in Switzerland, but advertisement
must states that the Fund is only aimed at
Accredited Investors

No public offering allowed No public offering allowed No public offering allowed
European Passport No. There is merely a bilateral agreement on the freedom of movement between Switzerland and France. In certain third-party states (e.g. Dubai and now also Bahrain), it is easier to distribute Swiss securities funds due to their „UCITS status‟. No No No
Taxation:
Income Tax Transparent Taxation: Assets and income
(distributed or capitalised) are allocated to
the investors on a pro rata basis. Taxation
takes place exclusively and directly at the
level of the investor. Collective investment
schemes with direct property ownership are the exception to this principle (e.g. real estate).
N/A N/A N/A
Withholding Tax Yes. In certain countries, it is possible by
way of an affidavit process to obtain relief
from withholding tax commensurate with
the units held by domestic investors. In
the case of collective investment schemes
that generate at least 80% of their income
from foreign sources, the income can be
distributed to investors domiciled abroad
without deduction of Swiss withholding
tax. The prerequisite is that all provisions for applying the so-called affidavit process
are met.
In principle, no Luxembourg withholding tax on dividends No Cayman Islands withholding tax on dividends No withholding tax would arise on dividend (subject to putting a standard declaration in place) or interest payments (from mezzanine debt) made by Irish companies to the Investment Undertaking.
Fees and Expenses:
Registration Fee EUR 3,000-10,000 (this is an estimate.
The final figure depends upon the size of
the fund and the time spent by the FINMA
on the file)..
EUR 1,250 for a Single Class Fund EUR 2,650 for an Umbrella Fund USD 4,500 (incorporation of an
Exempted Company, including
government fee) USD 3,050 (CIMA fund registration fee)
EUR 2,025-4,400

 

Our Experience

 

lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.

This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on moc.e1498386712taico1498386712ssaqc1498386712ocel@1498386712lrd1498386712 for any questions.