Author: Dr. Kurt Hyzler
Until very recently the Swiss asset management industry relied exclusively on self-regulation and was allowed to operate and develop somewhat independently from European regulation. It is now confronted with major regulatory changes which will align Swiss laws and regulation with AIFMD and MIFID. Gone are the days where Swiss asset managers could be independent and unregulated. Swiss asset managers will now be subject to EU-like forms of authorisations and prudential supervision which will have a transformative impact on the Swiss asset management industry and bring additional costs, most notably compliance and operational costs, which will invariably adversely affect smaller independent asset managers.
Whilst larger asset managers may have less of a problem absorbing the compliance and operational costs, consolidating with other asset managers or relocating to an EU jurisdiction, smaller independent asset managers may be in somewhat of a predicament. This is further compounded by the fact that despite the positive advice given by ESMA on the possible extension of the EU passport to Swiss AIFMS and AIFs, the European Commission has decided to delay the decision whether or not to extend the AIFMD passport to third country AIFMs.
With a good track record of attracting small to medium size funds due to its cost efficiency and robust regulation, Malta and its self-managed fund regime may possibly offer a solution to the independent Swiss manager looking for an uncomplicated and flexible solution.
In terms of the Maltese regulations, self-managed funds may be licensed as either Alternative Investment Funds (“AIFs”) or Professional Investor Funds (“PIFs”). Whilst AIFs would apply to fund promoters seeking to set up a fund above the de minimis threshold and/or wishing to passport the fund throughout the EU, the PIF licence is the licence of choice for smaller funds which would benefit from certain exemptions contained in the AIFMD such as the requirement of appointing a depositary. Although PIFs may not be passported throughout the EU, they benefit from a lighter regulatory touch and higher cost efficiency.
As both PIFs and AIFs are sold to persons or entities deemed to be professional investors, it is our understanding that an independent Swiss asset manager would be able to act as a portfolio manager of a Maltese self-managed fund duly licensed as a PIF in terms of the Investment Services Act without the requirement of any further authorisation in Switzerland as the assets of such fund would be required to remain below the € 100m threshold and therefore below the CHF 100m threshold. Thus, by undergoing a straightforward and cost-effective licensing process with the MFSA, a Swiss asset manager would effectively be able to manage his clients’ assets through a licensed fund in Malta, an EU country. Once the fund grows above the de minimis threshold, the Swiss asset manager would be required, through a seamless transition process, to convert the licence of the PIF to that of an AIF.
Irrespective of whether the self-managed fund is licensed as an AIF or a PIF, the management of the self-managed fund is ultimately managed by its board of directors with the assistance of an investment committee composed of individuals appointed by the said board including a portfolio manager who effects the day-to-day transaction of the fund.
Further to the licensing of the fund which would customarily take approximately three to four months, the majority of the members composing the investment committee of the fund would be required to meet at least once a quarter in Malta in order to formulate the investment strategy of the fund for the subsequent quarter. Thus the requirement of substance in Malta for a Maltese self-managed fund would be limited to (i) one Maltese resident investment committee member and (ii) presuming the investment committee is composed of the regulatory minimum of 3 members, the requirement of one other investment committee member to travel to Malta for an investment committee meeting once each quarter.
However, it is pertinent to note that any portfolio manager of a self-managed fund licensed in Malta who becomes resident in Malta may benefit from a favourable tax rate of 15% in terms of the Highly Qualified Persons Rules, provided that the individual concerned earns an annual salary of approximately €83,000 (exclusive of the annual value of any fringe benefits) in terms of a contract of employment. This 15% personal tax rate is furthermore reduced to 0% for any income earned by such persons in excess of €5 million per annum.
Alternatively to acting as portfolio manager to a self-managed fund licensed for his/her specific purposes, an independent Swiss manager may act also as an investment advisor to a third party manager of a fund licensed in Malta or directly to a fund itself. No specific licence would be required in terms of Maltese law by the said investment advisor so long the said advisor has business organisation, systems, experience and expertise deemed appropriate and necessary by the MFSA for it to act as an investment adviser. It is our understanding that an individual Swiss asset manager which has experience in investment management and investment advice in Switzerland would be approved as the appointed investment advisor to a fund.
Whether through the self-managed PIF option or the investment advisor route, Malta offers Swiss independent asset managers an attractive proposition for their operational requirements, underpinned by a solid regulatory framework. We would be delighted to provide you with assistance and bespoke advice on the options available in Malta.
 Assets under management of under € 100m including leveraged assets or € 500m for non-leveraged assets where investors may not exercise termination and redemption rights for a period of five years