The Limited Qualified Investor Fund (“L-QIF”) is an innovative fund product designed to enhance the attractiveness and innovative capacity of Switzerland as a fund centre. The consultation about the corresponding amendment to the Collective Investment Schemes Act (“CISA”) ended in autumn 2019[1].
The Federal Council adopted the dispatch on 19 August 2020, and on 20 April 2021, the Commission for the Economic Affairs of the Council of States examined and adopted by a very large majority the draft amendment to the CISA to introduce L-QIFs, despite some adjustments.
During its summer session, the Council of States adopted on 9 June 2021 amendment to the CISA to introduce L-QIFs. It is expected that the draft will enter into force by 1 January 2023 at the latest, but probably sooner, on 1 July 2022[2].
1. Definition of a Limited Qualified Investor Fund
The L-QIF is a collective investment fund which is (i) exclusively reserved for qualified investors, (ii) not subject to FINMA authorisation, approval or supervision (iii) and managed directly or indirectly by a supervised fund management company[3].
The L-QIF may take the form of a collective investment scheme, investment company with variable capital (“SICAV”) or a limited partnership for collective investment (“SCmPC »)[4].
2. Investors
The definition of qualified investors under CISA refers to:
- professional and institutional clients in accordance with the Financial Services Act (“FinSA”)[5];
- high-net-worth retail clients who have declared that they shall be treated as professional clients as well as the private investment structures established for the needs of these clients[6];
- investors, provided that they have not indicated that they should not be considered as qualified investor, with a written asset management agreement (discretionary or advisory) with a bank or a financial intermediaries supervised by FINMA,.
Professional and institutional clients under FinSA include in particular, financial intermediaries, insurances companies, pension funds having a treasury managed on a professional basis, etc.[7]
3. Legal Form and Administration of L-QIFs
The L-QIF is not formally a new form of Swiss funds. The existing open-ended collective investment schemes (i.e., SICAV or contractual fund) can be used as a basis for L-QIFs[8]. In relation to closed-ended funds, the Federal Council has limited the available closed-ended L-QIF structure to the SCmPC[9].
The absence of FINMA approval, authorisation and supervision over the L-QIF will be mitigated by the following countermeasures:
- L-QIFs organised in the form of contractual funds will have to be managed by a fund management company[10], itself regulated by FINMA[11]. The fund management company will be able to delegate investment decisions as well as specific tasks to regulated collective asset managers[12].
- L-QIFs organised in the form of a SICAV will need to delegate their administration and investment decisions to a fund management company[13]. The fund management companies will have the opportunity to sub-delegate their investment decisions to regulated collective asset managers[14].
- L-QIFs organised in the form of a SCmPCs will have to delegate their administration and the investment decisions to a FINMA regulated collective asset manager[15]. However exemptions to this rule have been made, in particular the obligation to delegate the administration will not apply to SCmPCs if its general partner (member of the SCmPC that bears unlimited liability) is licensed by FINMA as a Swiss bank, securities firm, manager of collective assets or insurance company.
4. Documentation
L-QIFs will not be required to prepare a prospectus or a key information document (as L-QIFs cannot be offered to retail clients)[16].
With regards to the investment regulations, the L-QIFs will be subject to various special regulations, which will replace the FINMA's powers in certain special cases, for example in the event of a change of management[17], amendment of documents or change of custodian bank[18].
In relation to the authorised investments of the L-QIFs, those investments must be set out in the following documents:
- for L-QIFs organised in the form of contractual funds, in the fund agreement for the contractual fund[19];
- for L-QIFs organised in the form of a SICAV, in their investment regulations[20]; and
- for L-QIFs organised in the form of a SCmPCs, in their partnership agreement[21].
5. L-QIFs and Anti-Money Laundering Obligations
A L-QIF organised in the form of a SICAV or SCmPC does not enter into the scope of the Anti-Money Laundering Act of 10 October 1997 (“AMLA”) and will be exempted to register to a self-regulatory body, provided that the institution responsible for the management of the said L-QIF complies with AMLA obligations and duties[22].
6. Conclusion
The amendments to CISA accepted by the Council of States on 9 June 2021 addressed most concerns raised during the consultation proceedings.
This new unregulated found category will enable the Swiss fund market to close the gap with its European counterparts as L-QIF provisions already exists in various forms in European countries since the entry into force of the AIFM Directive[23].
It also has to be noted that this new unregulated fund category should not contravene the European Securities and Market Authorities' recommendations dated 2015 which allow EU AIFMs to market their non-EU AIFs under the passport of Directive 2011/61/EU, and likewise for non-EU managers to market their funds under the passport.
Our Experience on financial regulatory, corporate and commercial advice
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 us on info@lecocqassocate.com for any questions.
[1] https://www.sif.admin.ch/sif/en/home/finanzmarktpolitik/finanzmarktregulierung-und--aufsicht-/regulierungsprojekte/kollektivanlagengesetz-kag.html.
[2] https://cdbf.ch/reperages_type/reglementation/.
[3] Section 118a(1) P-CISA.
[4] Section 118c P-CISA.
[5] Section 10(3) CISA, Section 4(3) and 4(4) FinSA.
[6] Section 5(1) FinSA.
[7] Section 10(3) CISA, Section 4(3) and 4(4) FinSA.
[8] Section 118c P-CISA.
[9] Section 118c P-CISA.
[10] Section 23 et seq. Financial Investment Act dated 15 June 2018 (“FinIA”).
[11] Section 118g(1) P-CISA.
[12] Section 118g(2) P-CISA.
[13] Section 118h(1) P-CISA.
[14] Section 118(3) P-CISA.
[15] Section 118h(2) P-CISA.
[16] Section 50 P-FinSA.
[17] Section 39a P-FinIA.
[18] Section 118k P-CISA.
[19] Section 118n(1)a P-CISA.
[20] Section 118n(1)b P-CISA.
[21] Section 118n(1)c P-CISA.
[22] Section 2(4)e P-AMLA.
[23] 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 and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 Text with EEA relevance
