The L-QIF has made launching a Swiss fund much faster: no FINMA approval for the fund itself. But there is a gate at the entrance, and it is not optional. Only qualified investors may come in. Get that wrong, and the whole structure is at risk.
So who is a qualified investor? The answer is in two laws: the Collective Investment Schemes Act (CISA), which refers to the professional client categories of the Financial Services Act (FinSA).
The institutions: qualified by nature
Some investors are professional clients simply because of what they are:
- Regulated financial institutions: banks, securities firms, fund management companies, managers of collective assets, and their foreign equivalents subject to prudential supervision.
- Insurance companies, central banks and public entities with professional treasury operations.
- Pension funds with professional treasury operations.
- Large companies that exceed two of three thresholds: a balance sheet of CHF 20 million, turnover of CHF 40 million, or equity of CHF 2 million.
- Companies with professional treasury operations, and private investment structures with professional treasury operations set up for high-net-worth individuals.
Private investors: two ways in
Opting out. A wealthy private investor can declare that they wish to be treated as a professional client. FinSA allows this in two cases:
- CHF 500,000 plus knowledge: the investor has at least CHF 500,000 in eligible assets and, through training and professional experience, the knowledge needed to understand the risks; or
- CHF 2 million: the investor has at least CHF 2 million in eligible assets, with no knowledge test.
What counts is financial assets. The family home does not.
The advisory route. A private client who has a long-term portfolio management or investment advice relationship with a regulated financial intermediary is treated as a qualified investor for collective investment schemes, unless they declare that they do not wish to be. This is the route most private banks and asset managers use.
The traps we see
- The tick-box declaration. An investor ticks “I have CHF 2 million” on a form and nobody checks. The opting-out must be credible. If the claim is obviously false, the declaration protects no one.
- Forgetting what opting out costs. A client who opts out gives up part of the protection FinSA gives retail clients. They must be told so, in writing or in another form that can be proven by text.
- Marketing too wide. Advertising an L-QIF to the general public, in Switzerland or abroad, invites exactly the investors the fund cannot accept. And foreign rules apply abroad.
The special case: real estate L-QIFs
Everything above applies to most L-QIFs. Real estate is the exception, and many promoters miss it.
If an L-QIF invests directly in real estate, only institutional professional clients may invest. Three groups that normally count as qualified investors are excluded:
- private clients who opted out;
- private clients under a long-term portfolio management or advisory mandate;
- private investment structures with professional treasury set up for wealthy individuals.
Why? The reason is tax, not investor protection. The legislator did not want wealthy individuals using an L-QIF to cut the tax on their property, at the expense of the Confederation and the cantons.
So is a real estate L-QIF still useful?
Yes, but for a specific audience.
- Institutional money: yes. Pension funds, insurers, banks, managers of collective assets and large companies are among the biggest real estate investors in Switzerland, pension funds first. For them, the L-QIF launches a property vehicle without waiting for FINMA approval, and the exclusion of private clients does not matter.
- Private wealth: not directly. A manager whose clients are private cannot offer them a direct real estate L-QIF.
- The way around: indirect real estate. An L-QIF that invests through property companies stays open to all qualified investors, private clients included. You keep the speed of the L-QIF, but not the tax advantage of direct holding, which is exactly what the legislator intended.
The tax trade-off between direct and indirect holding depends on the canton and the structure, and should be checked with a tax adviser before choosing.
“No FINMA approval” does not mean “no control”
Some will be tempted: if FINMA does not approve the fund, why not let a few retail investors in, or private clients into a real estate L-QIF?
Because the control has not disappeared, it has moved.
The manager is directly supervised by FINMA and is legally responsible for the L-QIF’s compliance, investor eligibility included.
The audit firm checks every year that the fund still meets the L-QIF conditions, and the custodian bank sees every subscription.
If the conditions are no longer met, the manager must notify FINMA, the custodian and the auditor immediately.
The fund then loses its L-QIF status and must be authorised or wound up. The manager faces FINMA enforcement, up to the withdrawal of its licence, possible criminal liability, and claims from the investors who should never have been there. FINMA no longer checks you at the door. Your auditor checks you at the end of the year.
What nobody tells you
The L-QIF moved the responsibility from FINMA to the manager. Nobody approves your investor list in advance. If an unqualified investor gets in, it is the manager who has to explain it, not the regulator. The onboarding file is your real licence.
More on the fund itself in our L-QIF guide.
Read the full series
This article is part of our series on launching and managing funds in Switzerland:
- The L-QIF: Switzerland’s fund without FINMA approval, and what it really requires
- Who counts as a qualified investor in Switzerland? The gate to the L-QIF (you are reading it)
- Managing funds in Switzerland: manager of collective assets or fund management company?
- Buy and upgrade, or start fresh? The fastest route to a Swiss CISA licence
- Buying a Swiss regulated company: what to check before you sign
Launching a fund and want your investor onboarding checked before the first subscription? Write to us at insight@fintechlex.com.
This article is for general information only and does not constitute legal advice.
