Switzerland has long been an offshore haven in the heart of Europe, often running money in offshore funds for anonymous clients. As such, its fund managers did not have to submit to formal regulation by their Financial Market Supervisory Authority (FINMA), while few did.
At the same time, many fund managers say their clients – Swiss and foreign – already wanted them to manage cash onshore – in Ucits funds, for example – before FINMA began to consider how best to subject the whole industry to onshore standards and transparency levels.
This was because of often severe corporate governance failings since 2008 in offshore funds, such as gating redemptions and Bernard Madoff’s shocking fraud.
Many investors argue Ucits funds would solve these, plus satisfy a thirst for greater transparency and liquidity, than offshore funds were compelled to offer.
François Reyl, CEO of Geneva-based private bank and asset manager Reyl&Cie, says with 2008 “fresh in their memory”, clients are already buying regulated Ucits products most among all product types.
Alessandro Mauceri, board chairman of Axiom Fund and chief executive of a Genevan multi-family office, says only endowments and foundations will prefer offshore, tax-neutral portfolios.
His preference for onshore vehicles was strengthened when, at a previous employer, he had money gated in an offshore fund. His firm went so far as to advertise in a
Swiss national paper for co-investors to come forward and help oust the fund’s board and unlock the money.
He says: “Managers that had said just days before they had less than 5% in private or illiquid investments then had 30% or more in them, and [locked client assets in a] side pocket. They had lied, but the reality was in -unregulated funds they did not have to disclose.
“The hedge fund industry makes sense. Although in an offshore unregulated vehicle, it does not make sense any more. It showed all its limitations in 2008.”