Q&A on Swiss PLF Case
Please find my answers below:
Distribution: The offer states: ‘The Investment Fund can be distributed to qualified investors in Switzerland’. The distinction between qualified and retail is understood. What remains to be clarified is whether a qualified investor residing in the EU, both individual or corporate, can subscribe to the Fund. Your email from yesterday referring to ‘investors domiciled abroad’ suggests that this is possible. We need definitive clarity on this point, let us know if you can provide it or if we should also double check with our legal counsel.
1741: Swiss investment funds can be subscribed by any kind of investors, i.e. also from investors residing in the EU. However, it is not allowed to carry out any distribution activity in the EU. As mentioned during our call, the presentation of the fund to members of your own network would not be qualified from our side as a distribution activity.
Custody fee: Perhaps this is something to discuss with ZKB rather than you, but we need to clarify whether or not custody fees will be applied both at the level of the Fund and the investor. As we disclosed in a previous email, we currently pay an all-in custody and brokerage fee of 20 bps p.a. If the fees are cumulative, then we move from 20 bps p.a. to approx. 57 bps p.a. (20 bps investor custody fee + 30 bps Fund fee + CHF 20k ZKB additional fee). This nearly triples the cost of investing our capital, which would make the economics of setting up a Fund difficult to justify, even at a larger scale.
1741: Typically, ZKB does not charge any fees for the custody of those fund shares, where they act already as fund custodian. We would recommend to contact ZKB from your side to get their written confirmation. Please note that we have not yet contacted ZKB regarding your fund project and the fee communicated to you (CHF 20k p.a. ) reflects the fee we have in place for other funds, where ZKB acts as fund custodian. Maybe you will be also able to negotiate a better fee in this regard.
Oyat Advisors: We were surprised to see that having Oyat Advisors as Portfolio Manager and not needing to set up a ManCo does not reduce fees. In that case, should we not consider having Oyat Advisors only as promoter/advisor and thus not have to get FINMA authorization to run a collective investment scheme?
1741: Every investment fund (Switzerland / EU) has to appoint a party which is fully responsible and liable for all activities in the fund (including inter alia administration, portfolio management and distribution). In Switzerland, this function belongs to the Fund Management Company (“Fondsleitung”) and companies have to be licensed for this activity. The license as an asset manager gives you only the right to manage the assets of the fund (based on a delegation agreement between the Fund Management Company and the asset management company). In consequence, we are discussing here two different licenses and activities. We will be unable to delegate the portfolio management activity to you as long as FINMA does not include this activity in your authorisation.
Share class: It is unclear to us if the offer is for only one or two share classes (one distributing and one accumulating). If it is the former, what would be the additional cost of having two share classes?
1741: Up to three share classes are included in our pricing.
NAV: As previously mentioned a monthly or weekly NAV calculation would be sufficient for us. Can this help reduce costs?
1741: Given the most recent FINMA practice, it will be required to match the liquidity of the portfolio with the redemption frequency and thus with the NAV frequency. Your portfolio is highly liquid and therefore a daily NAV will be required from FINMA. Please note that a weekly or monthly NAV would reduce cost only by 5 bps p.a.
Trading process: We’d like to clarify the trading process in this structure. We’re assuming that we would execute trades directly with ZKB, or would that go through the Fund Management Company instead?
1741: Trades will be executed by you directly with ZKB. However, you have to ensure a professional Pre-Trade-Check.
Asset migration: We’d like to clarify the process of migrating assets into the Fund and how that translates into Fund ownership for individual investors.
1741: Assets in the individual accounts of your current clients will be transferred to the fund account on day X. With closing prices of day X we will calculate the assets value which will be divided by the starting NAV (for example 100) and fund shares in the respective amount will be issued to each investor in the proportion of the assets transferred to the fund.
Example: Investor Y transfers assets with a valuation of USD 5’500’000 and based on a starting NAV of 100 he will receive 55’000 share of the fund.
Tax transparency: We’ve noted your comment on withholding tax. We’d also like to clarify the tax treatment of capital gains for fund shareholders.
1741: Tax treatment of capital gains depends on the tax residence of the relevant shareholder. Private capital gains on movable assets (e.g. fund shares) are normally tax-exempt throughout Switzerland.
I hope the above clarifies some of your questions.