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EBK Calls For Better Tax Incentives For Swiss Hedge Funds

by Ulrika Lomas, LawAndTax-News.com, Brussels

13 September 2007


The Swiss Federal Banking Commission (EBK), an independent regulator of the Swiss banking industry, has expressed its support for changes to the Swiss tax and legal system to encourage more hedge fund managers to base their activities in Switzerland.

In a report turning the spotlight on the development of the Swiss hedge fund market, the EBK observed that while Switzerland is home to some of the world's biggest hedge fund customers, the Swiss hedge fund industry itself is tiny compared with the main centres of New York and London, with only an estimated 50 hedge fund managers located in Switzerland out of a global total of 9,000 hedge funds.

The EBK stated that more than 5% of the assets invested in Switzerland are invested in hedge fund products, but about one third of the estimated $600 billion invested in funds of hedge funds comes from Switzerland, making it the world's second-biggest hedge fund investor after the United States.

The report suggested that changes to the tax and legal framework in Switzerland are needed to encourage growth in the country's hedge fund industry and to attract more fund managers.

"Aligning the today unfavourable tax conditions with those of the most important foreign locations could facilitate the settlement of hedge funds managers in Switzerland. In the view of the SFBC such a step would be welcome," the report stated. However, it added that such a decision lies with the political authorities who "will have to take into account other interests as well."

On the regulatory front, the EBK noted that the new Collective Investment Act offers a flexible legal framework with a number of different corporate forms for hedge fund activities in Switzerland, but managers of foreign hedge funds only have a limited opportunity to place themselves under the supervision of the SFBC. Revisions to the Act are needed to correct this, the report recommended.

"The possibility to be licensed and supervised could enhance Switzerland’s attractiveness as a location for hedge funds since a number of investors such as pension funds only invest in assets managed by asset managers under official oversight," the report stated. "The SFBC supports a revision of the Collective Investment Act toward the end of improving regulatory incentives for hedge fund managers to settle in Switzerland."

The EBK concluded that: "From an international perspective, Switzerland is a major market for the placement of hedge fund products. Conversely, it has to date been far less significant as a location for hedge fund managers and as a domicile for hedge funds themselves. The SFBC supports efforts to create incentives for hedge funds managers to base themselves in Switzerland by improving their operating environment."

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, trusts and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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