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Switzerland approves its first hedge fund

Date: Wednesday, March 23, 2011
Author: William Hutchings, Dow Jones Financial News

The Swiss financial services regulator has granted its authorisation to Switzerland's first hedge fund, in a development fuelled by the growing desire of institutional investors for greater regulation of alternative investment funds.

The Swiss Hedge Trading Fund has been launched by local distributor Swiss & Global Asset Management and is run by local manager Swiss Hedge Capital. It is the first single-manager hedge fund - as opposed to a fund of hedge funds - to be regulated by the Swiss Financial Market Supervisory Authority, Finma, according to Swiss & Global.

The long/short European equity fund replicates a strategy used by the manager in a Cayman-domiciled fund.

Reto Barbarits, a project leader at Swiss & Global Asset Management, said: "Institutional investors, mainly from Switzerland but also from the European Union, have told us that they would prefer hedge funds that come from a more regulated environment than an offshore domicile such as the Cayman Islands. We have seen investors asking for that in the last two months.

"One way to achieve that would be to use the European Union's Ucits fund structure, but that would not allow the physical borrowing of stock that the manager uses for short selling. The Swiss regulations don't impose that restriction, and we wanted the manager to have the chance to do what he does exactly, so we domiciled the fund here."

Barbarits said Swiss & Global could have opted for a Cayman-domiciled fund or sold to institutional investors using the private placement rules of each EU country, but there was a clear preference for the Swiss option and its greater regulation: "We see a lot of market potential here," he said.

The fund is denoted formally as an “other fund for alternative investments with special risk”. The authorisation by the Swiss authorities ensures that the fund meets requirements on transparency and investor protection.

While most hedge fund managers live and work in the US or the UK, their funds are domiciled in the Cayman Islands. Definitive figures are unavailable, but industry participants say Cayman is home to about two-thirds of the world's hedge funds.

Gerhard Schreiber, founder and managing partner of Swiss Hedge Capital, said: “The future of the hedge fund industry lies in the regulated environment."

A spokesman for Finma was unavailable for comment.

Barbarits added that the development would provide hedge fund managers with a reason to relocate to his country from the UK or elsewhere in the European Union. He said: "We think we will be able to attract them with this product. Swiss and European institutional investors say they would really prefer a fund with a Swiss domicile, and it is easier to get one if the manager is based in Switzerland and has a licence from Finma."

Jabre Capital, one of the first hedge fund management firms to set up in Switzerland rather than the UK, was brought under Finma's umbrella in 2009, but none of its funds are authorised by Finma.

Swiss & Global is part of GAM Holding, which was spun out of Julius Baer Asset Management in 2009 to be listed on the SIX Swiss Exchange and is the exclusive manager of Julius Baer funds. It had assets under management of Sfr80.4bn at the end of December 2010, and employed more than 250 staff.