When was the last time you drank the water you swim in? Ronnie Kirschke
You wonder why you`ve ever lived in any other place, Marc
My team called “Family” has never been more balanced and healthy. Wife and Mother of 2.
Former Unigestion hedge fund chief Philippe Gougenheim has lined up US$80 million for his new hedge fund—with hopes to raise twice as much in addition within just six months.
Gougenheim plans to launch his Glasnost Fund in September. Liquidity will be the byword for new vehicle, which will offer monthly liquidity with just three days notice. Announcing his plan in January, Gougenheim said he wants to have the ability to liquidate Glasnost's entire portfolio quickly, while still producing annual returns of 10% to 12% investing in futures and options.
"My idea is to be everything that hedge funds are not: liquid, transparent, with a focus on capital protection," Gougenheim told Reuters at the time.
The sales pitch is apparently working. Gougenheim now tells Reuters that he'll "have US$80 million on day one." And that's only the beginning.
"We have a very strong pipeline, and if we do what we've said we're doing for the first two or three months, then after six months I think we'll be closer to US$250 million," Gougenheim said. "We don't have any real track record, so some people would like to see us managing money for real. They're very pleased with the paper trading."
Fri Jul 6, 2012 10:37am EDT
(Adds additional reporting credit)
* New Swiss rules could shore up asset management industry
* Minimum experience rules will kill off some managers
* Exemption could give smaller managers time to comply
* Earlier proposals seen as a threat are ditched
ZURICH, July 6 (Reuters) - Swiss asset managers have welcomed simpler rules for their $4.2 trillion industry, which they say could boost their international reach rather than killing off smaller players as some had initially feared.
Regulator FINMA has toned down the proposals it outlined in March, when small managers said its costly one-size-fits-all approach to compliance and risk management might force them to relocate, merge or shut up shop.
"It is better than the original draft. People aren't fazed by it they welcome it, though they will need to prepare for it," Glen Millar, head of the Geneva office of asset management consultancy Kinetic Partners said.
"Switzerland can use it as an opportunity to make the jurisdiction more attractive for asset managers."
Swiss asset managers say FINMA's initial proposal was tougher than what was needed to comply with the European Union-wide Alternative Investment Fund Managers' Directive (AIFMD) that will regulate Europe's hedge and private equity funds from mid-2013. But the revised plans would bring Swiss regulations into line.
Martin Straub of Envisage Wealth Management in Zurich said: "FINMA isn't going overboard, as it seemed in the original draft.
However, compared with the UK which is preparing its own set of rules, Swiss fund managers look set to get off lightly.
Cath Tillotson of wealth management consultancy Scorpio Partnership said the UK regulator's Retail Distribution Review (RDR) is much tougher than the Swiss proposals.
"For RDR the cost of compliance is high, with onerous training and professional development requirements. Many independent managers won't be able to afford it," she said.
"The FSA (Financial Services Authority) is aiming for suitability rules for every product in the client's portfolio, so in comparison, what FINMA is proposing is very light touch indeed."
While London is still the undisputed centre of the European hedge fund industry, low-tax, lower-regulation Switzerland has grown in importance in recent years, attracting some of the biggest stars, including Brevan Howard co-founder Alan Howard and BlueCrest's Mike Platt and Leda Braga.
At least one Swiss canton has even held briefings in London's upmarket Mayfair district, the centre of London's hedge fund sector, on the attractions of moving.
TOO LIGHT TOUCH
An ongoing tax dispute with U.S. authorities and tax wrangles with key markets like Germany have dented the mature market client base of Switzerland's $2.2 trillion offshore wealth management industry.
But Swiss political and economic stability have been a magnet for entrepreneurs from developing markets like China and India seeking a safe home for their new-found wealth, helping to replace the depleting ranks of U.S. and European tax exiles.
Well-drafted regulation will bolster Switzerland's claims as a safe haven rather than a tax haven, industry sources said, opening up its asset managers' access to clients who prefer a well-regulated industry to one with no rules at all.
The proposed minimum experience requirements may close a small number of firms and make it harder to set up shop, but that could also be a positive, some managers say.
"I don't think FINMA is looking to put independent asset managers out of business, just have a more tightly controlled industry," said Straub.
"Regulation has been too light touch for too long, and I think something like this is long overdue. There should be some minimum relevant experience requirements - at the moment, a drover's dog could be an asset manager here in Switzerland."
The new rules have three aims, said Markus Fuchs, senior counsel at the Swiss Funds Association, an industry body: to improve investor protection, enhance competitiveness - for example, by ensuring all fund fees are clearly explained - and ensure international compliance.
"You have to be fully compliant with AIFMD to distribute funds in the European Union, so Switzerland will have to negotiate agreements with each EU country," Fuchs said.
"With a new law in place, the Swiss regulator can start negotiations with foreign regulators."
Not everyone is happy. Some frustrated fund managers said they were considering a move to Liechtenstein - whose European Economic area membership allows it to sell financial products more easily into the European Union - rather than registering with FINMA only to risk stiffer Swiss edicts.
"FINMA recommends applying for registration now without knowing what the rules will be," said one manager considering the move to Liechtenstein.
"You can't run a company for a year without clear guidance on what your legal base is," he said.
However the Swiss Parliament, which is expected to vote on the new rules by early 2013, is unlikely to stiffen the FINMA proposals, industry experts said.
Moreover small asset managers with under 100 million Swiss francs ($104 million) may be exempted from having to register with FINMA at present, giving them some leeway to see what new rules look like.
It may be the most expensive woodshed in the world. From the Pfäffikon Financial Centre, 20km south of Zürich, traders at a dozen or so hedge funds peep over their banks of trading screens to look out on to Herr Ochsner’s workshop: a ramshackle barn under a low-slung alpine roof. In among the shavings and planed planks is an old washing machine and, fluttering above it, a cantonal flag.
“We invited him to a drinks thing we had,” says Marcel Jouault a former Deutsche Bank hedge fund manager who set up the PFC barely a year ago to house a growing number of start-up hedge funds. “A really nice guy. He’ll never sell up. He loves working with his hands.”
Pfäffikon may appear a world away from Mayfair, the well-heeled central London district that is home to most of Europe’s $400bn hedge fund industry, but in recent years the clean, trim well-run township has become the exemplar of the country’s hedge fund boom. Cow bells have been all but drowned out by the sound of construction work; steel and glass offices are being slung up alongside the main road, the Churerstrasse. The Ochsner workshop, sitting on land worth millions of francs, is an exception.
“New asset managers are moving into all the new buildings here,” says Mr Jouault. “There’s a shortage of space.”
In recent months, however, a wave of disquiet has rippled through the nascent Swiss industry.
Rules proposed in March by Swiss politicians threaten to make a country once a byword for hands-off oversight of asset management into one of the world’s most exacting jurisdictions. Regulatory quietude – one of a trinity of benefits offered to hedge funds alongside low taxes and deep pools of investor capital – is gone for good.
The rationale for the new rules is clear: Switzerland, like every other country, must fall into line with the requirements of the EU’s Alternative Investment Fund Manager Directive, due to come into force in July 2013, if it wants its hedge funds and investors to continue to have relationships with those in European member states.
But the rules go much further than Europe requires. Bern says they will “strengthen international competitiveness for our financial industry” and ensure financial stability.
Their sternest critics, however, say the extra-tough provisions have the potential to make Switzerland’s developing hedge fund industry wither and to shut the rest of the world’s hedge funds. Alongside hedge fund managers themselves, Switzerland hosts the world’s largest collection of hedge fund investors after the US and UK, a $200bn capital pool that the proposed rules could severely restrict.
The new rules are far from being unwelcome by all, however. “The proposals have three good aims,” says Matthäus Den Otter, chief executive of the Swiss Funds Association. “The changes will secure access to the euro market, they will bring Switzerland into line with global standards by which asset managers are subject to financial regulation and they will as a result strengthen asset management in Switzerland and for Switzerland.
“What we do not want is this form of Swiss gold-plating.” Gold-plating, though, is exactly what Swiss authorities have gone for.
Truth be told, most Swiss have little time for the high-rolling foreign hedge fund managers and financiers that increasingly populate their expensive bars and boutiques. In Zürich, an irritated populace recently voted to end tax breaks permanently for the international super-wealthy.
Michel Barnier, Europe’s top financial regulator, describes himself as overseeing a “rule-making spring” that will ensure no part of the EU’s financial sector is left ungoverned writes Alex Barker.
For some hedge fund managers, this has been a golden invitation to decamp to potentially friendlier parts of the world, free from the uncertainty and extra costs generated by this burst of post-crisis regulation.
Those fund managers who paid little attention to Brussels received a rude awakening in 2009 from the clunkily named Alternative Investment Fund Managers Directive.
Drawn up amid public anger over financial excess, the European Commission’s proposed rules imposed governance standards, reporting requirements, stricter liability, minimum capital requirements and pay constraints on an industry that had enjoyed relatively free rein.
After more than a year of wrangling and wails of disapproval from the industry, a political deal was reached among EU member states that softened some important elements of the proposed law.
The predicted exodus of fund managers from the EU never matched the alarmist warnings. But fund managers and big banks are finding the battle over rules does not end with the passing of a law.
Some of the industry’s worst fears were revived by proposed technical standards, which allegedly roll back hard-fought compromises that underpinned the AIFMD deal.
While the commission’s 110-page draft of “supplementing rules” relates to specialist issues, the industry fears it would raise costs and shut out US and Asian fund managers.
Mr Barnier’s initial response was to vow “not to be intimidated” by “rearguard lobbying”. But both sides say talks currently under way could resolve some of the concerns.
This fight highlights another big concern: the openness of the EU market. Most of those leaving often want to make sure they are still able to do business with Europe from afar.
But Mr Barnier is taking a tougher approach regarding financial services groups outside the EU, effectively demanding that they work under similar rules and supervision. Moving may not be as easy as it seems.
Politically, though, the idea of regulating on behalf of the EU – a decision taken by Switzerland’s pragmatic centrist government – jars with deeply held beliefs about the almost sacrosanct independence of Swiss financial institutions from outside interference.
The desire to have a set of “Swiss rules for the Swiss”, as one banker puts it, may in part explain why the regulations tabled by Bern far exceed, in stringency, those of the EU.
“The light touch is over,” says Philippe Jabre, a former trader at London’s GLG Partners, and founder of Jabre Capital, Switzerland’s biggest hedge fund. “Things are changing fast,” he says, speaking from his rooftop offices on L’Ile, an islet on the Rhone in Geneva that his firm shares with a clutch of private banks and a 13th century bell tower. “The Swiss are doing what they need to which is to respond to the AIFMD.”
The regulations, some financiers fret, are perhaps the most concrete example yet that Switzerland’s historic course has shifted. It is no longer a force unto itself, and can no more escape regulation in a globalised world than can any other developed economy. There are an estimated 500 hedge fund managers based in Switzerland. The local industry burst into life after the country dropped capital gains taxes on non-Swiss funds in 2005. It has since experienced a surge in homegrown start-ups – many of which remain small – and, more recently, big firms from London and New York such as Brevan Howard, Moore and BlueCrest Capital opening satellite offices to escape rising and tougher new regulations.
Few fund managers will escape the new regulations. Essentially amendments to a national law introduced in 2006, they aim “to raise quality in asset management in general and strengthen investor protection”, a spokesperson for Finma, the Swiss market regulator explains. They break down into several main elements: management, custody and distribution, which covers who is permitted in a fund. They are “to be seen in context with the AIFMD rules in Europe”.
To bring the country into line with Europe’s regulations by 2013, Swiss managers will be required to obtain a licence from Finma that will entail ensuring they have dedicated compliance staff; providing investors with high levels of transparency; limiting leverage; appointing third-party custodians and administrators; and meeting a raft of other operational checks.
The danger is that the cost of implementation will force such managers under or drive them to merge, say specialists. “You are moving from zero regulation to a lot of regulation in one fell swoop. The potential shock could be big,” says Jirí Król of the Alternative Investment Management Association, the industry’s global lobby group.
Perhaps more controversially, though, the rules exceed the AIFMD in two respects. First, according to the draft, any fund taking investment from a Swiss-based institution must employ a permanent representative in the country, and meet strict regulatory equivalency requirements in its own home base. Funds may be sold to Swiss investors only if Bern has struck “information sharing” agreements with the country in which such funds are domiciled. Second, the draft rules – unlike those in Europe they are supposed to emulate – contain no exemptions for smaller managers, who will be hit hardest.
The PFC in Pfäffikon houses several smaller, start-up managers. “It’s a good incubator for the canton,” says Mr Jouault, who estimates there are as many as 50 managers now based in Schwyz, the surrounding canton.
One of those start-ups is Premier Alpha Capital, run by Brian Cordischi, the American former head of investment management at Barclays Wealth. “The rules look like they will be an increased burden for us,” he says. “We are looking at having to hire a compliance manager.” For two-man outfits such as PAC, such obligations could make business more expensive and time-consuming. “Regulation is a good thing,” says Mr Cordischi, “But not necessarily if you’re a very small hedge fund with only a handful of investors – it makes sense to have a two-tier regulatory system.”
For bigger funds, the distribution rules are of the greatest concern. Under the proposed requirements, a hedge fund based in New York with investments from a Swiss bank or institution would have to return such investments or else open an office in the Alpine country.
With Swiss private banks and asset managers comfortably accounting for more than a fifth of the global hedge fund industry’s assets, the scale of the potential problem becomes clear.
Jabre Capital is a rarity in that it has already registered with Finma – and as such the rules are likely to have a minimal impact. But for its peers, says Leila Khazaneh, the firm’s general counsel, distribution rules mean that “too much of a burden is being put on the representative”. She points out that they must shoulder legal liability for certifying the compliance of the funds by which they are contracted. Without a doubt it would “unduly restrict” who could take money from the Swiss, she says.
Lobbying to have the rules watered down or even struck out is under way, but there is still little sense of what may stay and what may go. “We think that on most of the controversial proposals, we will be able to get workable changes,” says one person connected with negotiations with Swiss senators who debate the legislation in two weeks. “Nobody here wants to damage this industry.”
Pessimistic managers point out that, while some of the edges may be rounded off, the overall picture is unlikely to shift much, however.
Exemptions for smaller managers may be granted, for example, but probably on a case-by-case basis. Similarly, the liability of mandatory “distribution representatives” may be reduced but the requirements for their existence is unlikely to go away.
No matter what form the law takes, the illusion that Switzerland operates apart from the rest of the world has been dispelled, however. Hedge fund managers can no longer count on Europe having a bolt hole at its heart.
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“The changes are important because we need market access and so if the rules change in the EU then it is very important for Switzerland to have rules that are in line – we cannot operate on our own,” said Mario Tuor, a spokesperson for the ministry of finance, charged with drawing up the new legislation.
On a Wednesday night, the bar of the Widder hotel in Zurich’s high-end Augustiner quarter resounds with the voices of international finance: there are bankers passing through town and hedge fund managers, sipping from the snug, wood-and-leather bar’s “library” of single malt whiskies.
“If the new rules come in, then yes, we’ll leave,” says one. Where they would go, of course, is the question. Norway and the Netherlands could be options but both will soon fall within the scope of the AIFMD. Further afield, the Caymans is where most managers’ funds are domiciled. Hong Kong and Singapore both offer competitive tax rates.
The pianist plays “As Time Goes By” in the background. “None of us at our firm are from Switzerland so we’ve no huge loyalty here, other than the fact that we like it as a place. With these rules, and the way they are handling tax disputes with other countries, they’re killing their reputation.”
On the surface, Pfäffikon appears little different from many other Swiss villages: a well-manicured but unlovely collection of low-rise houses and discreet office blocks on the wrong – post-industrial – side of Lake Zurich.
But beyond the bakeries and local shops, Pfäffikon is more than just a paragon of small-town wholesomeness.
On the brass door plates and signs of the town, the name of every other business is suffixed with “Capital” or “Partners”: Pfäffikon has become, in recent years, a magnet for hedge fund managers thanks to its low taxes and light-touch business environment – a pattern replicated across the country.
It is what the canton of Schwyz calls “Finance Valley”, or more barefacedly, “The Little Town of Big Money”, from where you can get a helicopter to Geneva for lunch. Or a speedboat to Zurich. Even, should you feel like slumming it, a spotless local train.
In recent weeks, however, the hedge fund managers of Pfäffikon, and Switzerland’s other discreet, low tax, light-touch towns, have been set chattering by sweeping changes to the way they will be able to do business.
Switzerland’s hedge fund management community is about to be subject to tough new regulatory oversight from the national markets regulator, Finma, thanks to legal changes designed to set a gold standard in global investor protection after Swiss asset managers’ reputations suffered during the financial crisis.
By 2013, the country’s hedge fund managers will move from being completely unregulated to operating under one of the most stringent regimes in the world. Switzerland's new laws will not only bring it into line with European Union regulations on hedge funds but, in some instances, go further.
“It’s a massive change in a country where regulation for asset managers didn’t exist previously,” says David Butler, the founder of Kinetic Partners, a consultancy that has helped move 50 hedge fund managers from London to Switzerland in the past five years. “A large number of those will get regulated,” says Mr Butler, adding that regulation in itself is “healthy”, if difficult to get right.
Among the more controversial elements of the rules are requirements that foreign-domiciled funds, such as those based in the Cayman Islands – most of the $2tn industry – must employ permanent representatives in Switzerland if they wish to take investment from Swiss institutions. The Swiss government will also have to have information sharing agreements in place with any such foreign jurisdictions.
Given the huge amounts of money funnelled into hedge funds through Swiss banks alone, the new regulations are local rules that will have a global footprint.
“These are specific Swiss features that are definitely protectionist,” says Joe Seet, head of the London-based hedge fund consultancy Sigma Partnership. “But is that necessarily bad? When you look at it reputationally, the Swiss have had a difficult time,” says Mr Seet, pointing to the Madoff scandal, which hit several prominent Swiss investment houses hard. “The aim is to create something that investors are more confident about,” he says.
Switzerland’s local hedge fund industry is not entirely thrilled with the proposals, however.
“It’s a good thing for the investors, but a complete pain for hedge fund managers themselves,” says Marcel Jouault, the chief executive of the Pfäffikon Financial Center.
Managers of small funds, of which Switzerland has many hundreds, are likely to be hit the hardest. The rules will require managers to hire dedicated compliance officers, for example, adding significant costs to firms that may employ as few as three or four individuals.
“A colleague who runs a $500m fund did an assessment and they came to the conclusion that they would not be profitable when these rules come into place,” says Christian Sougel, the head of Ernst & Young’s Swiss asset management practice.
“I don’t think the industry has grasped the urgency of the matter,” he says. “They are only just getting to grips with European regulations.”
Indeed, the Swiss regulations are being instituted to match the EU’s controversial alternative investment fund manager directive, due to come into force in 2013.
“It is to be seen in context with the AIFM rules in Europe and aims to raise quality in asset management in general and strengthen investor protection,” a spokesman for Finma said
Whether it will, or whether it will merely result in higher costs being passed on to such investors, remains to be seen, say the hedge fund managers of Pfäffikon and their peers.
Trading stars cluster in the Swiss cantons
Switzerland’s reputation as a bolthole for regulation-averse and publicity-shy hedge fund managers is not entirely undeserved.
Since Philippe Jabre, the former GLG Partners trading star, moved to the country following a then-record £750,000 fine for market abuse by the UK’s FSA in 2006, the Swiss cantons have steadily built up their share of successful but recondite hedge funds.
Jabre Capital – or JabCap – the firm Mr Jabre set up in Geneva six years ago, is now Switzerland’s largest hedge fund. From its offices on an island in the middle of the Rhone, the firm manages assets of $6bn for clients and has an enviable track record of double-digit annual returns.
Mr Jabre has been all but fully rehabilitated into the hedge fund industry and is, according to many peers, the proof that grown-up investors do not need tough regulations to help them pick, and profit from, the best managers.
Indeed, of an estimated 500 hedge fund managers based in Switzerland, just 91 are registered with Finma, the Swiss market regulator.
Registration is only necessary for those management companies running funds which are also themselves based onshore in Switzerland.
Not every fund manager enjoys the lack of oversight. “It’s always been our view that the highest level of regulation was a good thing,” said Christopher Cruden, founder of Lugano-based Insch Capital.
The past two years have nevertheless seen scores of high-profile hedge fund names setting up in the alpine country, thanks to the rise in the top rate of tax in the UK to 50 per cent and the threat of broad new regulation of the industry from the EU.
Brevan Howard, Europe’s second-largest hedge fund manager, moved several dozen of its top traders, including founder and trader-in-chief Alan Howard, to Geneva in 2010.
BlueCrest Capital, Europe’s third-largest hedge fund, followed suit by moving most of its top trading talent to Geneva. The firm identified the EU’s new zealous hedge fund rules as a cause for doing so.
The only reason Europe’s biggest hedge fund, the Man Group, didn’t also move from London, industry watchers pointed out at the time, was because it already had: Man’s 500-person office in the village of Pfäffikon has been in operation since 2002.