Fund management in the domicile tension area

Fund management in the domicile tension area

The final decision on the configuration of a fund depends on the investment policy, the client type, and possibly its own specifications. However, the domicile of the client also plays a relevant role when new funds are being launched.

The domicile of a fund is the result of an assessment of the best possible setup for covering the needs of the fund sponsor, i.e. the initiator of the fund. If this is an asset manager, the choice of fund domicile is crucial to bringing the fund closer to the client. As a service provider for asset managers, a broad selection of fund domiciles is mandatory. The EU "passporting" of fund management companies has proved to be a useful practice.

What is passporting?

Passporting allows a licensed fund management company domiciled in an EU/EEA country to set up and manage funds in other EU and EEA countries in accordance with local law. For instance, a Luxembourg fund management company that has an Irish passport can set up both local and Irish funds under UCITS or AIF law.

The fund management company is based on the existing setup and legal organization, as well as the competencies, in Luxembourg. It mandates the administrator based in Ireland and simultaneously interacts with the custodian bank in the fund's domicile.

"Fund sponsors benefit from the expanded range of possible fund setups and also from differences, including in the definition of diversification or countries with double taxation agreements with the respective fund domicile," explains Ralph Warth, Head of Fund structuring at Credit Suisse Funds, before adding: "Credit Suisse has used the EU passport for its Luxembourg fund management company to expand its product range for private label fund sponsors."

Positive feedback from international clients from the asset management, wealth management, and family office business confirmed the added value of the expansion step.

Is Luxembourg the ideal domicile for fund management?

It is no coincidence that many fund transactions originate in Luxembourg. The small country is very popular as a domicile for the configuration and management of funds. According to Ralph Warth, there’s good reason for this: "Luxembourg's success as an investment fund center is based on the excellent collaboration between politics, the fund association, and the fund industry. This creates ideal framework conditions for the investment fund center and its participants."

This was also demonstrated by the rapid implementation of the revised, more liberally designed guideline under the ELTIF (European Long-Term Investment Fund), which allows investments in unlisted companies, real estate, and infrastructure while simultaneously being suitable for retail, professional, and institutional investors.

Fund services from a single source

Credit Suisse offers fund sponsors all the services for Luxembourg-based funds from a single source in order to efficiently ensure that international clients (from Asset Management, for instance) can sell products throughout the EU/EEA.

In addition, Credit Suisse also serves the fund locations of Switzerland, Ireland, and the Cayman Islands. Ralph Warth notes that, "Swiss funds are the first choice for regulated Swiss insurance companies and pension funds as well as for domestic banks and asset managers with domestic distribution or discretionary mandates."

The future of Switzerland as a fund location

Switzerland is already very important for the Swiss economy thanks to its value creation – fund management, administrators, custodian banks, audit companies, supervisory authorities, and distribution companies – as an employer and thus also as a tax base and consumer of services. This role could continue to increase in the future.

In December 2021, parliament approved the extension of the CISA to include the Limited Qualified Investor Fund (L-QIF). "The liberal implementation of the L-QIF ordinance can significantly strengthen the Swiss fund market," believes Ralph Warth. He adds: "The future importance of Switzerland as a fund location is therefore entirely in the hands of politicians."

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