- Other funds for traditional investment
- Other funds for alternative investment
Art. 68 CISA contains a negative description for these funds as being open-ended collective investment schemes that do not qualify as securities funds or real estate funds.
Whether a fund is considered an other fund for traditional investment or as an other fund for alternative investment fund depends on the risk profile of the individual fund. The risk profile of the other alternative investment fund differs from that of both traditional and securities funds. In comparison, a fund can qualify as an other fund for traditional investments if the risk profile differs only slightly from the provisions for securities funds.
Permitted Investment
The permitted investments are basically the same for both types of fund and includes:
- Securities
- Units of other collective investment schemes
- Money Market Instruments
- Sight and time deposits with a maturity of up to 12 months Precious metals
- Precious Metals
- Real Estate
- Derivatives Financial Instruments, and
- Structured Products
This is an exemplary, not conclusive list.
Also, note:
- FINMA may authorise other investments such as commodities and commodity certificates (Art 99, para. 2 to Art 101 CISO)
- Any investment that (i) has only limited marketability, (ii) is subject to strong price fluctuations, (iii) exhibits limited risk diversification, or (iv) is difficult to value, may only be made if it is explicitly permitted under the fund’s regulations. Art. 69 para. 2 lit. a-d CISA
- Borrowing – Alternative Investment Funds may only raise loans for an amount of up to 50 per cent of the fund’s net assets, provided that this is expressly laid down in the regulations on Swiss Alternative Investment Funds.
EPM Investment Techniques and Derivatives
For funds for traditional investments, the provisions on the use of EPM investment techniques and derivatives are the same as those for securities funds (hence equivalent to the UCITS provisions) (Art. 70 (2) CISA and Art. 65 CISO-FINMA). This is not the case for other funds for alternative investment.
For funds for traditional investments, Art. 100 and Art. 101 CISO provides that in the event that investment techniques and restrictions go further than those for securities funds, the special provisions for other funds take precedence. In individual cases, FINMA may allow deviations in investment techniques and restrictions pursuant to Art. 101 CISO.
Investment Limits
The investment limits are less restrictive for the Other funds for alternative investment, as summarised below:
| OTHER FUNDS FOR TRADITIONAL INVESTMENTS | OTHER FUNDS FOR ALTERNATIVE INVESTMENTS | |
|---|---|---|
| ENGAGE IN SHORT-SELLING | Yes | Yes |
| BORROWING | Max 25% NAV | Max 50% NAV (Art 100 (2) lit. a, CISO) |
| PLEDGE, OR TRANSFER AS COLLATERAL | Max 60% NAV | Max 100% NAV (Art 100 (2) lit. b, CISO) |
| MAX OVERALL EXPOSURE | Max 225% NAV | Max 600% NAV (Art 100 (2) lit. c, CISO) |
Additional Investor Protection for Other Funds for Alternative Investment
There are additional regulatory requirements for other funds for alternative investments:
- Professional qualifications: In accordance with FINMA119 practice, fund management companies or asset managers of other funds for alternative investments must have at least two managing directors with thorough training and at least five years of professional experience in the area of the intended investments;
- Company organization: The requirements for appropriate business organization result from Art. 14 CISA and Art. 10 ff. CISO. Particularly with regard to risk management, the licensing holder must be organized in such a way that all material risks can be sufficiently identified, evaluated, controlled and monitored (Art. 12a Para. 2 CISO). In addition, the requirements of Art. 67 et seq. of the CISO-FINMA must be complied with; and
- Transparency: The special risks of a fund for alternative investments must be explicitly mentioned in the prospectus and in advertising (Art. 71 para. 3 CISA). This notification must be approved by FINMA (Art. 102 para. 1 CISO). It must be attached to the first page of the fund regulations and prospectus in the form approved by FINMA (Art. 102 para. 2 CISO). The prospectus must be offered free of charge to interested persons prior to conclusion of the contract or subscription, thus actively offered (Art. 71 para. 4 CISA) and not merely made available (i.e. passively held available).