Switzerland Faces Alpine Exodus In Face Of New Hedge Rules

Dec 12 2012 | 10:20am ET

Almost half of Switzerland's hedge funds are mulling a move to Liechtenstein to avoid newly-adopted Swiss hedge fund regulations, a new survey shows.

Switzerland, long favored as a light-touch regulatory haven, has approved new rules that mirror tougher regulations adopted by the European Union. But while the EU has pledged to grant access to its markets to hedge funds from any country whose regulations pass its muster, those third-country funds might have to wait until 2015—and possibly longer—to get a so-called "passport."

Switzerland is not an EU member, nor a member of the European Economic Area. But Liechtenstein, whose 61 square miles are wedged between Switzerland and Austria, is an EEA member, and hedge funds based their will not have to wait for a passport. About 47% of Swiss fund managers are considering a move to the tiny principality, long a popular tax haven, according to a PricewaterhouseCoopers survey.

"Until now, Switzerland offered one of the most lenient private investment regimes in Europe, if not the world," PwC's Günther Dobrauz told Bloomberg News. "This is about to change."

It is unclear how many hedge funds will actually make good on the threat to move. Almost three-quarters of the 92 firms surveyed said that Switzerland is their home base due to proximity to friends and family. And while Liechstenstein is only about 50 miles or less from hedge fund centers like Zürich, Zug and Pfäffikon, it is on the opposite side of the country from Geneva, a roughly four-hour drive.

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