In this, the first of two articles, MATTHEW FEARGRIEVE takes a look at Switzerland in 2020 as a centre of alternative asset management for single managers and managers of funds of hedge funds (FoHFs).
Switzerland is the fifth largest global centre of alternative assets under management (AUM), after North America, the United Kingdom, Sweden and France. Around three times the size of Connecticut, the small, central European country boasts approximately 15% of global alternative assets under management.
Switzerland is the third largest centre in continental Europe for managers of alternative assets, with Sweden coming first and France second.
Facts and Figures
- The main local centres in Switzerland for alternative asset management are Zurich, Zug and Pfäffikon.
- There is approximately US$120 billion of alternative assets under management in Switzerland by single managers, representing around 4% of global AUM held in single manager hedge funds.
- There is approximately US$300 billion of alternative assets under management in Switzerland by FoHF managers.
- There are around 180 hedge fund management firms in Switzerland, the majority of which are based in Zurich, Zug and Pfäffikon.
- The country is home to 5 of the world’s largest 21 FoHF managers.
Single managers Around US$120 billion of alternative assets is managed in Switzerland by single managers, most of which are based in Zurich, Zug and Pfäffikon. Of that US$120 billion:
– 55% is held in Cayman Islands domiciled investment vehicles;
– 30% is held in Luxembourg vehicles; and
– 15% is held in other jurisdictions.
Single managers in Switzerland, operating largely outside the EU regulatory framework, clearly have a demonstrable preference to house their assets in the leading “offshore” financial centres (principally the Cayman Islands), and to a lesser extent more “regulated” EU fund domiciles like Luxembourg.
FoHF Managers There is approximately US$300 billion of alternative assets under management in Switzerland and pooled in FoHF, representing around 30% of European FoHF assets. Switzerland is home to 5 of the world’s 21 largest FoHF managers.
FoHFs managed in Switzerland attract three-quarters of their assets from European investors, mainly institutional allocators, and this explains the choice of more “regulated” domiciles for the funds, the majority of which are domiciled in Luxembourg:
- 50% is held in Luxembourg domiciled investment vehicles;
- 15% is held in Swiss vehicles;
- 10% is held in British Virgin Islands vehicles; and
- 8% is held in Cayman Islands vehicles.
In clear contrast to the domicile preferences of single managers, managers of FoHFs prefer “onshore” to “offshore” domiciles. The high level of allocations from EU institutional investors, such as pension funds, is the key driver behind their choice of EU fund domiciles over non-EU domiciles.
The Greater Zurich area as a centre of asset management The majority of the Switzerland’s hedge fund management is carried out in three centres, all of which are part of the Greater Zurich Area:
The ZHAW School of Management and Law estimated in 2019 that the hedge fund industry in Zurich supports 5,000 jobs. Zurich is the centre of choice for managers, with around 60 hedge fund management companies established there.
Zug & Pfäffikon
There are around 15 fund management companies in Zug, a low-tax canton some 45 minutes by fast train from Zurich. There around another 15 based in Pfäffikon, a sleepy town some twenty-five minutes along the lake from Zurich which in the past fifteen years has enjoyed prominence as a centre of global alternative management thanks to the sizeable presence of Man Group. Recently however, Man has reduced its local workforce from 600 to 200, consistently with contraction across the global hedge fund industry, and there have been corresponding redundancies and closures of other managers in the area. Nevertheless, Pfäffikon remains an important financial services centre in Switzerland. And with the 2008 financial crisis behind us by more than a decade, in the aftermath of which we saw some hedge fund managers relocating from London to Switzerland, there have been in recent years small but significant moves of managers back to Pfäffikon.
Join us here for the second article in this series, in which we look at the financial regulatory landscape in Switzerland and how global contraction has impacted hedge fund managers there.
MATTHEW FEARGRIEVE is an investment management consultant. You can read more of his commentary on the asset management industry here: https://medium.com/@matthewfeargrieve