If you are raising money for your alternative fund, you will need to decide where to go. The decision will be based on external parameters such as target market size, structure, compliance cost as well as internal considerations such as your resources, physical distance, language, etc.
In this article, we assess the characteristics of the Swiss market for alternative investments to help you take an informed decision.
Target market size
The Swiss asset management industry has undergone even more dramatic change since the Global Financial Crisis than other large markets asset management markets. Switzerland lost banking secrecy, battled with a strong local currency and still waits for an EU passport. Despite those headwinds, the industry has been able to rebound from its lows to regain pre-crisis assets level. According to the Swiss Fund and Asset Management Association (“SFAMA”) banks, broker/dealers and fund managers managed combined assets of more than CHF 2 ,000 billion. This number includes 1,240 billion in discretionary mandates, CHF 320 billion in Swiss domiciled funds and CHF 700 billion in foreign funds.
The structure of the market
The main players are banks, insurance companies, public and private pension plans and wealth managers. With nearly 300 banks, 2,000 pension plan managers and 3,000 wealth managers (including family offices), there is no shortage of targets to cover.
But the overall numbers are misleading. They disguise an important concentration of assets in the hands of a select few allocators, especially when it comes to alternative investments strategies. To give an example, out of 1,800 pension funds, only a dozen or so allocate directly to alternative strategies. The picture is similar in the wealth management channel. Even specialist databases overestimate the number of allocators to, for example, private equity by a factor of two to three leaving fund managers to guess who to prioritize.
Apart from knowing who the allocators are, you need to understand their selection criteria. Family offices have different objectives than pension funds and private banking clients are different again. They have different risk/return and liquidity tolerances and face different regulatory concerns which influences their fund structure preferences (onshore vs. offshore). A one size fits all approach may suit the manager but is unlikely to resonate with allocators.
Compliance with Swiss distribution law
Since March 2015, funds looking to raise money from unregulated qualified Swiss investors like wealth managers, family offices and pension funds need to appoint a Swiss representative and paying agent.
Unlike other European investors, Swiss investors are not restricted from investing in classic off-shore fund structures. The right fund structure depends on the type of investors targeted.
We estimate that around 3,000 alternative funds have taken action to become compliant. Compared to other jurisdiction, the process is simple and does not require a registration with the regulator or periodic reporting. The average annual cost of the setup is around CHF 10,000.
Who is buying what?
Detailed fundraising data for Switzerland is hard to come by. Through conversations with managers and investors as well as looking at the data from over 400 representation clients we can discern the following trends:
Swiss investors demonstrate strong appetite for investment in private market funds (private equity, venture, real estate, infrastructure, credit). We estimate that more than 80% of the managers are successful in raising assets in Switzerland.
The overall number of players disguises important asset concentration in the hands of a few allocators. A targeted fundraising strategy will typically target less than 50 allocators.
Family offices have the highest allocation to alternatives (defined as hedge funds, private equity, real estate and infrastructure). This is confirmed by recent study by UBS/Campden Wealth which pins the alternative allocation at nearly 30% (45% when direct real estate is included). Private market strategies, in all shapes and forms, dominate the agenda currently.
Pension funds start from a smaller base (ca. 5% excluding direct real estate) but are actively ramping up alternatives. Investing in international real estate funds is expected to be a multi year trend. Private credit is another topic that is gaining traction with the larger Swiss pension funds.
Switzerland has recovered the level of assets under management it had before the financial crisis. The regulatory framework is well balanced and ensure client protection without too much burden for funds and their managers. A substantial pool of assets is invested in alternative investments across all the major investor categories. Demand for strategies and fund structures is as diverse as the investor universe.
But a rifle shot approach is needed. Carpet bombing will do little beyond antagonizing the real allocators. Knowing the market is a key ingredient for a successful fundraise. Some trends are well known, others less so. Fortune favors the prepared. Contact us if you would like to discuss your approach.