“One of the most important considerations for us when choosing the legal representative was that they had a strong compliance structure,” affirms Leila Khazaneh (pictured), general counsel at Jabre Capital Partners, one of Switzerland’s most established hedge fund managers.
Khazaneh says that the service provider they settled on was an independent specialist whose team have a legal and auditing background, as opposed to a firm with more of a marketing and fund distribution bias.
“When the new rules were published by FINMA, some companies viewed it as a new commercial opportunity; all funds distributed in Switzerland would have to appoint a Swiss representative and there weren’t many service providers in the market. We were very careful with our selection,” confirms Khazaneh.
Currently, Jabre Capital is at the stage of reviewing the legal documentation so there are no concerns over meeting the 1 March 2015 deadline. “Speaking to some US and UK-based fund managers, this has certainly crept up on them,” notes Khazaneh who, when asked the importance of mitigating reputational risk when appointing the representative, continues: “If you look at it, the main task of the representative is to help the fund comply with Swiss disclosure obligations and ensure that relevant Swiss legal requirements are incorporated into the fund’s offering documentation and marketing materials.
“As the corollary to that, the Swiss representative has to keep up with the Swiss legal and regulatory obligations of the funds. These are evolving. The representative needs to ensure they have the resources in place to monitor this on an ongoing basis and keep the funds up-to-date. We are very sensitive about the reputation of the JABCAP fund platform. In deciding who to appoint, our priority was to ensure the firm had the requisite skill and resources for the task at hand.”
That Switzerland is now proactively introducing a regulatory framework for alternative fund managers is a key development in Khazaneh’s view, noting that with CISA, harmonisation with EU standards is “crucial for the Swiss funds industry”.
Jabre Capital has always embraced best practices. Back in 2007, there was only a “voluntary authorisation regime”, where a manager could choose to opt-in and be regulated by FINMA. This is precisely what Jabre Capital did.
“Getting regulated back in 2009 allowed us to launch the JABCAP UCITS platform and to enter into joint ventures with Swiss banks and other financial institutions. That there is now an obligation under CISA for all Swiss managers to become regulated, we see as a welcome development,” comments Khazaneh.
The need to appoint a Swiss paying agent, however, is less welcome. Hedge fund managers like Jabre Capital wonder whether it is not just an extra cost to the fund, for a service that will rarely, if ever, be used. “All our Swiss-based investors are highly sophisticated”, notes Khazaneh, “with established banking relationships. We don’t foresee them using the paying agent our funds appoint.”
Given the extra costs associated with new levels of regulation, many local managers anticipate that only the bigger firms will survive. Many smaller fund managers are looking to merge or relocate. In Khazaneh’s view, “Swiss legislators are probably quite happy about that. The trend they seem to be encouraging – in distribution as with asset management – is the market evolving towards larger, more sophisticated fund platforms that have the resources to quickly adapt to the new regime.”