Tapping into the Swiss investor market with a (EU or non-EU) private fund requires compliance with the local Swiss marketing rules for private funds. As can be expected from a jurisdiction whose financial industry is a cornerstone, the Swiss fund marketing rules are generally efficient, but they come with some specificities depending on the type of investors that are solicited.

This article takes USPFMs, in Q&A style, through the Swiss regulatory landscape of marketing non-Swiss private funds in Switzerland. (The applicable Swiss rules depend amongst other on the type of marketing efforts that are made. There are three categories of marketing efforts: (i) advertising of fund units, (ii) offering of fund units and (iii) providing ‘financial services’ in relation to fund units. Those categories are not mutually exclusive, but it can generally be held that the latter category has the broadest scope and is therefore the starting point when identifying the applicable Swiss rules. This Q&A focuses on the latter category but, if relevant for USPFMs marketing to Swiss investors, the first two categories are also covered  in the relevant paragraphs of this Q&A). Considering the ongoing retailisation trend in the private fund sector, USPFMs demonstrate a particular interest in the extensive pool of Swiss high-end private wealth investors. This Q&A also outlines the marketing rules to access those type of investors.   

Although this Q&A is tailored to fund marketing by USPFMs in Switzerland, it is equally relevant for other non-Swiss fund managers.

1. What type of marketing efforts trigger regulation in Switzerland?

An effort that is expressly aimed at the acquisition of an interest in a private fund qualifies as a financial service in the sense of the Swiss regulatory framework and therefore triggers the Swiss marketing rules for private funds.

An example of a marketing effort that is a financial service is sharing finalized fund documents (e.g. a private placement memorandum, limited partnership agreement or a subscription booklet) with prospective Swiss investors.

Swiss law does not specify whether e.g. “soft” marketing or pre-marketing efforts, characterised by the distribution of draft fund documents and e.g. pitch decks and term sheets, qualify as a financial service and thus trigger the Swiss marketing rules.

As a general rule, the exchange of information regarding a fund that does not yet exist or does exist but whose key terms (e.g. name of fund, main parties, investment policy, fees, issuing and redemption terms) are not yet formalised does not trigger the Swiss marketing rules. Hence, testing Swiss investor appetite with a pitch book containing indicative and non-definitive fund terms should generally not trigger the Swiss marketing rules.

Interactions with prospective investors (e.g. during an investor conference) that focus only on the USPFM, its team and its track record does also not trigger the Swiss marketing rules.

2. What determines the type of Swiss rules applicable to a marketing effort?

In Switzerland, as in most other countries, the exact regulation applicable to private fund marketing activities depends on the type of Swiss investors that are targeted. The more sophisticated the investors are, the better they are able understand the risks of an investment and the less protection they need. Marketing efforts directed towards Swiss institutional and professional investors are therefore subject to more relaxed rules than marketing efforts directed towards Swiss retail investors.

To anticipate the applicable set of marketing rules, USPFMs need to categorise targeted Swiss investors into institutional, professional and retail investors prior to conducting any marketing efforts. The introduction of a USPFM to a prospective Swiss investor therefore usually comes with a segmentation form (Segmentation Form) that requires the investor to disclose for which investor category it qualifies. Based on such disclosure, the USPFM can assess whether it meets the conditions to further engage with that investor. The USPFM can generally rely on the disclosures in the Segmentation Form to identify the appropriate set of marketing rules.  

3. What is a Swiss institutional investor?

Swiss institutional investors are typically regulated financial intermediaries such as banks, securities firms, fund managers, asset managers and insurance companies.

4. What is a Swiss professional investor?

Swiss professional investors are less sophisticated than Swiss institutional investors. They include for example occupational pension schemes with professional treasury operations, large companies, and high net worth individuals and their private investment structures that can and do opt out from their retail status (see under 8 below).  

5. What is a Swiss retail investor?

Swiss investors that do not qualify for one of the two above categories qualify as retail investors.

6. What are the conditions for marketing to Swiss institutional investors?

USPFMs targeting Swiss institutional investors must adopt organisational rules to ensure that their internal processes are structured to comply with the Swiss rules of conduct. In practice, this means that there must be e.g. a clear allocation of tasks, competencies and responsibilities within the organisation, adequately trained employees (including on the Swiss fund marketing rules) and measures to identify, disclose and, where possible, avoid conflicts of interest. Often, USPFMs already comply with such rules and only some information requirements and the training on the Swiss law requirements are missing.

While the organisational rules are not that actively supervised, a breach of those requirements would likely come up in the event of an investor complaint. The consequence would be sanctions for non-compliance (see below for details) and may also lead to civil liability of the USPFM towards the investor.

Private funds have generally met investor expectations in terms of performance over the last decade. Investor complaints were therefore less likely. Considering the headwind the private fund industry currently faces, investor complaints may occur more regularly in the near future. Compliance with the above rules is therefore high on the agenda of USPFM active in the Swiss market.

7. What are the conditions for marketing to Swiss professional investors?

USPFMs targeting Swiss professional investors are subject to the above-mentioned rules applicable for marketing to Swiss institutional investors, but also to ongoing code of conduct rules. The latter rules include duties to provide information to professional investors on the USPFM itself (such as its address, regulatory status and field of activities), the general and abstract risks associated with investing in financial instruments such as fund units, the costs (including indirect fees resulting from the marketing activities and management fees) and the concrete risks when investing in the fund. Such information, which can be provided in a standardised manner, is usually a natural part of the marketing process and is therefore not perceived as an additional burden.

The code of conduct rules require the USPFM to document the marketing activities (e.g. storing e-mail communications between the USPFM and the prospective investors) and the information collected from the investors. In addition, the USPFM must, periodically and upon request, make the collected documents and information available to the relevant investor.

Professional investors may generally release the USPFMs from the above-mentioned code of conduct duties. Such waiver must be express and in writing. These waivers are typically given in the Segmentation Form and are commonly relied upon by USPFMs.

Although the code of conduct rules come (unless waived) with an additional administrative burden, they do not prevent USPFMs from offering private funds to Swiss professional investors.  

8. What are the conditions for marketing to ("high end") retail investors?

As in most other jurisdictions, tapping into the retail investor pool comes with extra restrictions. Those are generally aimed at protecting retail investors against the additional risk that comes with exposure to the private markets, most notably illiquidity risk. Offering private funds to Swiss retail investors requires among others authorisation of the fund by FINMA, the Swiss regulator. This is a path rarely explored by USPFMs and we will therefore not discuss it.  

There are, however, relaxed marketing rules that apply to certain Swiss “high-end” retail investors. Individuals and their private investment structures can opt-out of their retail status and be treated as professional investors if they can credibly declare that they:

  1. have the necessary knowledge to understand the risks of the investment (e.g. based on personal training, professional experience or comparable experience in the financial sector) and have assets at their disposal of at least CHF 500,000, or
  2. have assets at their disposal of at least CHF 2,000,000.

The personal training requirement mentioned under (i) is met, for example, if the investor has a university degree in economics or finance. The professional experience must have been gained in the financial sector, which includes professional experience gained at supervised financial intermediaries. At least one year of professional experience in the financial sector fully replaces the training requirement. With respect to comparable experience, FINMA has specified that an investor has comparable experience if it has carried out an average of 10 transactions of a significant size per quarter on the relevant market over the previous four quarters.

Investors that meet one of the above conditions usually opt out of their retail status when completing the Segmentation Form. Prior to such opt-out, no marketing efforts can be addressed to the relevant investor. The opting-out is typically re-confirmed in the fund subscription agreement to make sure that the status of the investor remains unchanged. USPFMs can generally rely on the information provided by the investor (or their investment structures) with respect to their knowledge or assets as long as it’s deemed credible. There is no requirement for the USPFM to conduct a plausibility check, unless there are doubts that the investor is not eligible for an opt-out.

Offering and marketing funds to opted-out Swiss investors is subject to the following requirements:

  1. The USPFM must affiliate with a Swiss ombudsman. Such affiliation can be processed online and is a basic process. An ombudsman acts as a mediator to settle potential disputes between the investor and the USPFM.
  2. A Swiss paying agent must be appointed. The paying agent may organize the flow of payments (e.g. in the case of distributions). Although USPFM must appoint a paying agent, they often make limited use of the paying agent’s services in practice.
  3. A Swiss representative must be appointed. This is usually a fund service provider. The Swiss representative is responsible for ensuring that the marketing of the fund and the fund documentation is compliant with Swiss law.
  4. The individuals who are part of the USPFM’s investor relations team and who market the fund to Swiss investors must be registered with a client adviser registry. Additional information regarding this requirement is provided in the next question.

9. What are the recent market trends for onboarding Swiss high-end retail investors?  

Switzerland has recently seen an increased appetite of USPFMs wishing to tap into Switzerland’s large pool of high-end retail investors. This reflects the general retailisation / democratisation trend in the private equity sector. Private funds offered by USPFMs either aim to onboard such high-end retail investors directly in their funds or they seek commitments from “access vehicles” managed by third parties, often credit institutions. These access vehicles seek commitments from amongst others Swiss high-end retail investors and they in turn commit to the private fund managed by the USPFM In case of an access vehicle, it is often the third-party manager of such vehicle that must comply with the Swiss marketing rules. In such a set-up the USPFM avoids the need to deal with a potentially very large pool investors that come in with relatively small commitments.    

10. Any Swiss registration requirements for the US investor relations team?

The individuals who are part of the USPFM’s investor relations team and who market the fund to Swiss investors qualify as “client advisors” under Swiss law. The USPFM is generally required to register its client advisors in an online register managed by a service provider irrespective of whether the investors qualify as institutional, professionals or high net worth individuals. This requirement is connected to the USPFM and does not have to be repeated for each new fund strategy or vintage.

A specific exemption applies for client advisors of prudentially supervised foreign financial service providers. Recent developments have shown that USPFMs registered with the SEC’s investment advisors registry should benefit from this exemption. This exemption does not apply if marketing efforts are directed towards retail investors even if they opt-out of their retail status to be treated as professional investors.

All the members of the investor relations team who are in contact with the Swiss investors qualify as client advisers. The registration process takes one to two weeks once the relevant documents are in order and a compulsory legal training has been completed. The registration cost ranges between CHF 640 and 840 per person and the cost of the legal training is charged separately. The registration is valid for two years and needs to be renewed thereafter if the relevant individuals are still active in the Swiss market.

The compulsory legal training aims to ensure that the team members have a good understanding of the Swiss marketing rules. Typically, it takes about 4 hours to complete the training, which can be done online or in-person. The training is organized by service providers. The client adviser registry maintains a list of eligible providers for the trainings. Client advisers must attend a refresher training for the renewal of the registration after two years (if the relevant individuals are still active in the Swiss market at that time). The fees for the training are not included in the client advisor registration fees and must be paid separately to the relevant third-party provider.

As part of the registration process, third-party liability insurance is required. The USPFM must obtain such insurance to cover any liabilities that may arise in the context of the client advisers’ efforts. A US insurance policy does not always qualify and therefore a second insurance policy may need to be taken out in Switzerland.

11. Are the Swiss marketing rules applicable to the USFM if the private fund is placed through a financial intermediary such as a bank or placement agent?

Swiss banks function as an important hub to channel wealth e.g. of high net worth individuals directly into private funds. If a bank or other financial intermediary is engaged by a USFM for the placement of fund units with its Swiss clients whereby no direct contact is established between the USPFM and Swiss investors, the USPFM is not in scope of the Swiss marketing rules. Instead, the marketing rules must be respected by the bank or financial intermediary.  

If the Swiss bank acts through and access vehicle (see above) there is generally no contact between the USPFM and the Swiss investor. If the Swiss bank acts under a  discretionary investment mandate and invests on behalf of the investor in the private fund, there is usually also no direct contact between the USPFM and the Swiss investor. However, if the Swiss bank acts under an advisory mandate, direct contact between the Swiss investor and the USFM is more likely. If a placement agent introduces its Swiss clients/contacts to the USPFM, the Swiss marketing rules apply.

Practice shows that a case-by-case analysis is required to determine whether there is any actual contact between the USPFM and the Swiss investor and, thus, whether the Swiss fund marketing rules are triggered.

12. Is reverse solicitation possible in Switzerland?

If a Swiss client contacts a USPFM requesting to acquire units of a non-Swiss fund at its own initiative without any previous advertising or contact by the USPFM or its placement agent, this generally falls outside the scope of Swiss financial regulations. This means that the requirements detailed above must not be complied with. These situations are obviously quite rare.

If reverse solicitation is relied upon, it is important for evidential purposes that a reverse solicitation declaration letter is signed. The mere reliance on a reverse solicitation letter lacking the supporting facts is not considered sufficient by FINMA.

A fine of up to CHF 500,000 can be imposed for unauthorized Swiss marketing efforts. Failure to register client advisors may even be sanctioned with a prison sentence. In addition, the reputational risks for the USPFM should not be ignored.

If you have any questions on fund marketing in Switzerland by USPFMs (or non-US fund managers), please do not hesitate to reach out to the contacts below!