Swiss Review Workings of Limited Partnership

Cyril Demaria

6 October 2008

The Swiss Private Equity and Corporate Finance Association has given its initial feedback on the workings of Swiss limited partnerships (called “société en commandite de placements collectives” locally). Effective since January 2007, the Swiss Federal law on collective investments (Loi fédérale sur les placements collectifs) has created this vehicle specifically dedicated to private equity.

“While excelling in asset management, Switzerland had to design its own direct investment structures”, said Christophe Borer, member of the board of the SECA. He said that Switzerland is capitalising on the experience of other countries to offer an equivalent of the limited partnership. Whereas France created the fonds commun de placement à risque ex nihilo, Switzerland has reused its “société en commandite” to fit the existing template of the limited partnership. There is hence no need to learn to use a specific new vehicle for fund managers, said Mr Borer.

Switzerland has taken a more pragmatic stance than Luxemburg which bet on an adaptation of its legal framework to create the société d’investissement en capital-risque (SICAR) which is not so tax efficient as it distributes dividends and not profits. “The target is to attract fund managers and investors by offering them a structure close to the limited partnership, which is very popular abroad,” said Mr Borer.

Off shore vehicles have sometimes proven to be weak in terms of legal enforcement of agreements, but investors in Swiss private equity structures are protected by a pre-approval by the Swiss Federal Banking Commission. The Swiss are also relying on their reputation of quality as a platform for the launch of the new vehicles.

“The tax transparency of the legal structure and the expected clearance about taxes on carried interest are clearly contributing to the attractiveness of this structure,” said Shelby du Pasquier, partner at Lenz & Staehelin in Geneva.

This new vehicle is expected to place Switzerland at the forefront for direct investment vehicles. “I can name five structures created or about to be created since January 2007. The experience acquired by the Swiss Banking Commission will probably accelerate the procedures going forward”, said Mr du Pasquier.

The introduction of a fast track agreement procedure for foreign fund managers willing to create products in Switzerland is expected to play as well in favour of the Swiss limited partnership.