Asset Management News Edition 1/2021 - Asset Management ...
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Asset Management News Edition 1/2021
Table of Contents
In Focus Preliminary remarks from Adrian Schatzmann 3
Fund markets Key data on the international fund business 4
Swiss fund market in 2020 5
Increase in assets under management year-on-year 7
Equity markets in 2020 7
Swiss ETF market in 2020 9
SFA ARI® 10
Key figures on the Swiss financial center 11
National environment FinSA / FinIA 12
L-QIF 13
Sustainable finance: Federal Council’s next steps 13
Brexit: bilateral agreement on financial services 14
State Secretariat for International Finance 14
International environment Sustainable finance: regulatory developments in the EU 15
ESMA on MMF 18
ESMA on AIF leverage risk 18
ESMA on costs and fees of UCITS 18
ESMA on ESG ratings and assessment tools 18
ESMA on cross-border fund distribution 18
ESMA on ELTIF 18
ESAs on PRIIPs KID 18
ESAs on sustainability-related disclosures 19
ESMA rules for taxonomy-alignment under NFRD 19
IOSCO on sustainability disclosure standards 19
The Association‘s activities Members 20
Specialist committees 20
Save the date for the following events 21
Interesting reading Friends of Funds 22
10th World Funds Day 22
M&A in 2021: asset management primed for consolidation 22
Global assets in sustainable funds: record high of USD 1.65 trn 22
Die besten Schweizer Aktienfonds 22
Impressum Useful informations and adresses 23
News Spring 2021 2
In Focus What exactly is asset management anyway? I hear this question a lot, and it does annoy me a little that our industry – a key part of the financial services sector along with banking and insurance – and its considerable importance for this country and its people are not widely known. There is hardly a single household in Switzerland that does not use asset management services. People entrust their savings to our industry, often in the form of Pillar 2 and Pillar 3 pensions, but many are simply unaware of this. I am convinced that we can and must do more to improve awareness and appreciation of asset management. We should not be hiding our light under a bushel. We work in an industry that channels capital into forward- looking and increasingly sustainable sectors of the real economy, for example by investing in companies and infrastructure projects. In doing so, it creates jobs for the long term and strengthens the economy as a whole. As the “third contributor”, our industry has generated around a third of Swiss pension funds’ assets over the past ten years through market returns. By investing the savings private individuals entrust to it professionally, it helps them to secure their future and achieve their financial goals. Looking ahead also reveals how important asset management really is. Just think about our industry’s priori- ties: pensions, sustainability, and the digital transformation. These same topics are equally crucial to the ove- rall economy and society at large and are set to remain so. Asset management plays a vital role in all of them. These huge tasks come with a great deal of responsibility. If we are to live up to this, we need optimal fra- meworks. It is a virtuous circle: the more successful we are in conveying how important asset management is and the value it creates for society in a way people can understand, the more receptive politicians and the general public will be to our concerns. This challenge, together with the central role asset management plays for the population and the immense opportunities it brings for Switzerland, is what motivated me to join the Association and start working to pro- mote asset management after more than 25 years in the industry. I look forward to meeting you soon so that we can underscore the importance of asset management in Switzerland and strengthen the country’s position as a base for our industry. Adrian Schatzmann CEO Asset Management Association Switzerland News Spring 2021 3
Fund Markets
Key data on the international fund business
The rise in global fund volumes seen in Q2 2020 continued in the third quarter. At the end of September 2020,
the newly calculated fund volumes stood at EUR 52.2 trillion, up 1% quarter-on-quarter and 10.9% for the
six-month period. Funds of funds accounted for EUR 3.57 trillion. In 2014, working in conjunction with the
IIFA (International Investment Funds Association), EFAMA incorporated new fund types – including ETFs,
institutional funds, and hedging products – into the universe covered, and this resulted in a massive increase
in both fund volumes and product numbers. Direct comparisons with earlier data can therefore only be made
with figures from the beginning of 2015 onward.
Positive trend in global fund volumes across the board
No country or region was in negative territory in local currency terms in Q3 2020. The EUR appreciated only
slightly against the USD during the quarter, which had little impact on the results. In the USA, the total volu-
me remained above the EUR 25 trillion mark at the end of September 2020. According to the latest EFAMA
report, a total of more than EUR 17 trillion was invested in funds in Europe.
Geographical trends in investment fund assets in Q3/20 (in EUR billions)
4.3% 2.7% 3.0% 0.4% 4.4% 4.4% 5.6%
25.19 25.14
16.59 17.04
1.90 1.95 1.88 1.87 1.83 1.87 1.58 1.61 1.39 1.36
USA Europe China Australia Japan Canada Brazil
2nd quarter 2020
3rd quarter 2020 Changes measured in local currencies
Source: EFAMA International Statistical Release, December 2020
News Spring 2021 4
Scarcely any change in the international breakdown
Comparing the figures ascertained by EFAMA, both the USA and Europe showed relatively stable shares in
the fund assets invested worldwide at the end of September 2020. China (3.7%) remained in third spot, alt-
hough its lead over the next two countries on the list – Australia and Japan with 3.6% each – was only minimal.
Geographical trends in investment fund assets by end of September 2020
USA 48.2%
Others 2.6% Japan 3.6%
Brazil 2.6% Canada 3.1%
Australia 3.6% China 3.7%
Europe 32.6%
Source: EFAMA International Statistical Release, December 2020
Global fund universe of 140,714 funds
There was a further increase in the fund universe covered by EFAMA in Q3, and by the end of September
2020 it stood at a record high of 140,714 different products. This corresponds to an increase of 1,978 funds
since the beginning of July 2020. The breakdown of products per fund category is as follows: equities 41%,
bonds 21%, mixed assets 17%, money market 13%, and others 8%.
Swiss fund market in 2020
Swiss Fund Data AG, a subsidiary of the Asset Management Association Switzerland and SIX Swiss Ex-
change Ltd, has been publishing statistics for the Swiss fund market together with Morningstar Switzerland
GmbH since 2014. The market data of the two companies are brought together and published by Swiss Fund
Data AG in the form of public market statistics and via a monthly statistics subscription service. This offering
is complemented by the regular market commentaries from the Association, which cover the development of
the Swiss fund market.
Fund volumes around CHF 1,324.6 billion
According to the statistics on the Swiss fund market, the total volume stood at CHF 1,324.6 billion at the end
of December 2020, an increase of CHF 75.4 billion or 6% quarter-on-quarter. The figures are based on the
FINMA approvals list and cover all funds under Swiss law as well as all foreign funds approved for sale in
Switzerland, including institutional unit classes.
News Spring 2021 5
Development of fund assets since January 2020
Fund category Volume 31.12.19 Volume 31.12.20 Overall change
Equities 534.6 583.8 + 49.2
Bonds 381.5 405.3 + 23.8
Money Market 108.0 107.9 - 0.1
Asset Allocation 136.9 138.2 + 1.3
Others 2.5 2.8 + 0.3
Natural Resources 25.2 30.5 + 5.3
Alternatives 16.4 15.8 - 0.6
Real Estate 35.9 40.3 + 4.4
Total Swiss Market 1241.0 1324.6 + 83.6
Source: Swiss Fund Data / Morningstar (in CHF billions
Broken down by asset class, equity funds still have the largest share at just over 44%, followed by bond funds
with 30.6%. Mixed-asset funds remain in third spot with approximately 10.4%.
Increase of 2 funds
At the end of 2020, there were 9,908 funds approved for public sale in Switzerland, a net increase of two
products. Of these, 1,775 were funds under Swiss law (+41), and 8,133 were funds under foreign law (-39),
the latter category being dominated by 5,356 Luxembourg-law products (-115).
The revised CISA is continuing to bolster the market activities of many providers, hence the net increase
of 41 funds. Over the course of the year, 136 foreign collective investment schemes were newly approved,
while 175 were removed from the register. A total of 120 Swiss-law products were newly approved, with 79
removed from the register. Of the 1,775 Swiss-law funds, 766 were approved by FINMA exclusively for sale
to qualified investors.
The ratio of foreign funds to collective investment schemes under Swiss law has remained fairly constant
at around 4:1 over recent years. Luxembourg and Ireland are by far the largest foreign domiciles of funds
approved in Switzerland. With a total of 7,370 products, their share of the market for foreign-domiciled funds
remained unchanged at 90% as of the end of 2020. France remained in third spot, followed by Liechtenstein
and Germany.
Development of number of funds by type of fund / fund domicile
Fund type / As of end- As of end- Change
Fund domicile December 2019 December 2020 in the year 2020
Swiss Funds 1734 (761) 1775 (766) + 41 (5)
Swiss limited partnerships 22 (22) 21 (21) - 1 (-1)
Securities funds 136 (0) 148 (0) + 12 (0)
Other funds for tradit. inv. 1463 (689) 1486 (690) + 23 (1)
Other funds for altern. inv. 46 (23) 48 (26) + 2 (3)
Real estate funds 67 (27) 72 (29) + 5 (2)
Non-Swiss funds 8172 8133 - 39
Luxemburg 5471 5356 - 115
Ireland 1914 2014 + 100
Other countires 787 763 - 24
Total Swiss and Non-Swiss 9906 (761) 9908 (766) + 2 (5)
(In brackets: funds for qualified investors) Source: FINMA
News Spring 2021 6
Increase in assets under management year-on-year
In line with market trends, the securities holdings in client custody accounts at Swiss banks were rather vola-
tile over the course of 2020, reaching CHF 6.9 trillion at the end of December according the Swiss National
Bank statistics published in February. This represents a rise of 2.7% from the already high level of CHF 6.7
trillion recorded at the beginning of the year. The current level is the highest ever recorded. According to the
SNB’s monthly statistics, the securities holdings of non-resident clients remained stable at CHF 3.3 trillion.
Resident clients’ holdings, meanwhile, rose by 5.1% to CHF 3.6 trillion. At just over 48%, non-resident clients’
share of securities holdings was a little lower than 12 months previously.
Differing fund weightings for resident and non-resident clients
The fund holdings of resident custody account clients rose by 7.7% to CHF 1,644 billion. Their non-resident
counterparts had fund holdings totaling CHF 917 billion at the end of December, which translates into a rise of
3.2%. As regards fund weightings, the trends were similar over the course of the year. In the case of resident
clients, there was a steady increase from the 44.9% recorded at the beginning of the year to 46% by the end
of December 2020. The figure for non-resident clients, meanwhile, rose from 26.8% to 27.5%.
Development of securities holdings
Category Domestic Foreign Total
2019 2020 2019 2020 2019 2020
Money Market 30 27 59 66 89 93
Bonds 760 770 581 513 1341 1284
Equities 1038 1086 1638 1673 2676 2759
Collective investments 1526 1645 889 918 2416 2562
Structured products 44 43 156 160 200 203
Other securities 0 0 0 0 0 0
Total 3398 3571 3323 3330 6722 6901
Source: SNB, Monthly Statistical Bulletins (figures in CHF billions)
Equity markets in 2020
Looking back, many investors may well have wished for “business as usual” in 2020 rather than a year that
went far beyond their wildest dreams and worst nightmares. From an all-time high to a huge slump and a swift
recovery, there was a little of everything. Some 12 years after the financial crisis, the coronavirus subjected
the global economy to a new stress test.
Like a rollercoaster
In a year dominated by the coronavirus, the stock markets mostly performed quite well, which came as a
positive surprise. That said, there was considerable volatility. When the threat posed by the virus started to
become clear in mid-February, many leading indexes plummeted, some by as much as a third. The recovery
that followed was not quite as fast, but it was hardly sluggish. The second wave of coronavirus infections in
the fall depressed the markets once again, but sentiment was then buoyed by the prospect of vaccines being
approved soon. Further impetus was provided during the Christmas holiday by the resolution of two conflicts:
a Brexit deal was reached after protracted negotiations, and the USA signed off an extensive economic sti-
mulus package in response to the pandemic.
News Spring 2021 7
Central banks and state funding setting the tone In 2019, the combined forces of the central banks only just succeeded in averting a global recession, which would have been the first since 2009. To this end, they agreed to extend zero interest rates indefinitely. The stock markets responded by reaching fresh highs at the start of 2020, but the euphoria came to an abrupt end as the coronavirus started to spread around the world. When the pandemic took hold, governments took charge of crisis management, aided by the central banks’ generosity. The economic aid packages announ- ced worldwide to support companies hit by interrupted production and supply chains and thus protect large numbers of jobs, together with expansionary monetary policies on the part of the central banks, helped the markets to withstand the crisis. As a result, investors’ maxim “shares, what else?” was even truer than it had been in prior years. At the end of March, economists and forecasters alike were still guessing which letter the market and economic trends would resemble going forward – would it be V, U or L? The sharp recovery ultimately made for a distinctly V-shaped curve. Most stock markets recovered by the end of the year, when they were close to or even above the highs seen in the first two months. Politics having less impact At the political level, the US presidential election overshadowed everything else. The extensive wrangling both before and after the vote kept traders on their toes and repeatedly sent prices racing higher or lower. The net effect on share prices, however, was insignificant. Brexit had a considerable impact, especially at the start of 2020, but it took a back seat as the year progressed despite its great importance with regard to the economy and stock markets. Divergence in equity returns The year got off to a confident start, but the financial markets were hit hard when the coronavirus pandemic broke out in February 2020. With large parts of the world in lockdown during the spring, economic output collapsed to an unprecedented extent. Very few market participants probably thought back in April that the stock markets would rebound so dramatically before the end of the year. That said, not all shares followed the same trend. The lockdowns brought public life and global trade to a standstill. Value stocks rooted in the physical world crashed, while all things virtual rallied. The gulf between traditional firms and the winners of the digital age was clearer than ever. Numerous tech firms profited from the pandemic, including online retailers and videoconferencing software providers. Mainland China’s “A-shares” also stood out as the country (along with other Asian nations) handled the pandemic comparatively well, with the result that its economic output actually grew in 2020. The tourism sector, by contrast, suffered heavy losses last year. Devastated by travel bans as well as hotel and restaurant closures, many companies had to be bailed out by state aid. Bonds holding up well Bonds once again surprised on the positive side. As in previous years, there was little confidence in them because interest rates had more or less stopped falling, and a slight rise in yields was expected, which would weigh on prices. However, this is not how things turned out. Yields fell further in numerous European count- ries, resulting in capital gains almost across the board. Even in Switzerland, investors fared better than the prevailing negative interest rates would have suggested. Despite the upbeat economy, however, fundamental credit quality continued to decline, and the macroeconomic environment offered no scope for an improve- ment. The pandemic triggered a reappraisal of risk, leading to higher volatility. Investors started demanding risk and illiquidity premiums, which they had been tending to forget. It was only when the emergency purcha- ses by the European Central Bank (ECB) and the first intervention by the US Federal Reserve System (Fed) brought expectations of unlimited state support that risk premiums on corporate bonds quickly returned to pre-crisis levels. Investors were even prepared to lend money to companies with poor credit ratings. Developments in Switzerland Swiss equities put in a decidedly respectable performance in view of the pandemic. The Swiss Market Index (SMI) posted a slightly positive full-year performance that compared favorably with that of other European benchmarks. Of the 12 years since the financial crisis, 2020 was one of nine in which Swiss equities gained value on average. The market has gained around 10% a year over this period, almost twice the historical average. News Spring 2021 8
Significant gain for gold, good result for real estate
Gold continues to be seen as a safe haven – not just because of the coronavirus crisis, but also thanks to the
central banks massively increasing the money supply. Its value rose by 22.2% last year. Another investment
alternative – real estate – also profited during 2020 from low interest rates and investors’ search for higher
returns. At 2.6%, the dividend yield of listed Swiss real estate funds was highly appealing compared with
yields on Swiss Confederation bonds.
Selective approach
After a momentous year in every respect, many forecasters are optimistic for 2021. Big steps toward an
economic normalization are expected, in particular as a result of the coronavirus vaccines. In addition, go-
vernments will use further measures such as short-time work to cushion or offset the impact of the economic
downturn. Many stocks are comparatively highly valued, so taking a sector-based approach remains key.
With a fair amount of optimism already priced in, negative surprises here and there seem more likely than
positive ones. Investors are sure to remain nervous. It therefore makes sense to check whether the portfolio
risk chosen still tallies with the investment horizon and personal risk tolerance.
The major stock markets in 2020
Europe -20 -10 0 10 20 30 40 50
Sweden (OMX) 5.8%
Switzerland (SMI) 4.3%
Germany (DAX) 3.6%
Netherlands (AEX) 3.3%
Europe (Stoxx 50) -2.6%
France (CAC 40) -5.0%
Italia (MIB) -5.4%
UK (FTSE 100) -11.5%
Spain (IBEX 35) -15.5%
North and Latin America
USA (Nasdaq Composite) 43.6%
USA (S&P 500) 18.4%
USA (Dow Jones) 9.7%
Brazil (Bovesta) 3.0%
Canada (S&P/TSX Composite) 2.2%
Mexico (IPC) 1.2%
Asia/Pacific
Japan (Nikkei 225) 18.2%
Australia (S&P/ASX 200) 0.7%
Hong Kong (Hang Seng) -3.4%
Returns in percent (in local currencies) Sources: NZZ, Onvista
Swiss ETF market in 2020
Turnover of exchange-traded index funds had risen steadily since 2013 before suffering a minor setback in
2018. Following a sustained recovery, 2019 turned out to be a record year. ETF turnover fell 9.9% year-on-
year in 2020 to CHF 112.4 billion, but this is still a highly respectable level. At the end of the year, there were
1,598 different ETFs listed on the Swiss Stock Exchange, spread across 28 issuers. In terms of investment
focus, products covering traditional equity markets were still out in front with a 29.3% share. Bond ETFs had
News Spring 2021 9
a 25% share of the market with 399 products. The number of ETFs for commodities and precious metals fell
slightly to 91, accounting for 5.7% of the market by value. As regards trade sizes, the median was lower than
ever at CHF 9,399, falling below CHF 10,000 for the first time.
Turnover and number of ETFs at SIX Swiss Exchange since year 2002
Number of ETFs Turnover in CHF millions
1‘600 Turnover SIX Swiss Exchange 160‘000
Number of ETFs on SIX Swiss Exchange
1'400 140‘000
1'200 120'000
1'000 100'000
800 80'000
600 60'000
400 40'000
200 20'000
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: SIX Swiss Exchange
SFA ARI®
SFAMA launched the SFA ARI® in 2012 with a view to making it possible to compare the actual yields of listed
Swiss real estate funds at the product level. This indicator is based on the investment yield statistics and
is calculated quarterly (January, April, July, October) by Swiss Fund Data AG on the basis of the respective
annual reports.
Development of the SFA ARI® since 2015
7%
6%
5%
4%
2015 2016 2017 2018 2019 2020
(Q3)
Source: Swiss Fund Data
News Spring 2021 10The fund universe comprises the real estate funds listed on the SIX Swiss Exchange that make direct real estate investments in Switzerland, with Switzerland being their sole investment country. Funds of funds and Swiss funds that invest directly outside Switzerland are excluded. The current investment yield as measured by the SFA ARI® stands at 5.45%. This figure is based on the annual reports as at 30 September 2019, representing an increase of 0.04 of a percentage point over the previous quarter. Some 33 real estate funds with net assets totaling around CHF 38.4 billion were included in calculating the current figure. Key figures on the Swiss financial center Twice a year, the State Secretariat for International Finance publishes up-to-date figures on Switzerland as a location for financial services. This useful summary publication is available for download and can also be ordered free of charge in a handy booklet format. https://www.sif.admin.ch/sif/en/home.html Documentation
National Environment FinSA / FinIA The industry has entered the final phase of implementing the FinSA and FinIA. The transition periods spe- cified in the FinIA for existing licensees expired at the end of 2020. The FinSA, meanwhile, gives financial service providers until the end of this year to implement its new rules. The transitional provisions also specify deadlines for phasing out certain provisions of the old CISA. These also expire at the end of this year. In summary, the existing conduct and organizational rules under the CISA will continue to apply to financial service providers until they have implemented the FinSA at the point of sale. This means that existing agree- ments and processes can be maintained, even if they are no longer fully compliant with the revised CISA. At the same time, however, it also means that only providers that have implemented the FinSA will be able to take full advantage of certain relaxed rules under the new legislation (such as those concerning the require- ment for a representative and paying agent or distribution agreement and audits). This rule applies to both existing financial service providers and those newly entering the Swiss market. Since 1 February 2021, only financial service providers that serve retail clients and professional clients who have made a declaration under Art. 5 para. 1 FinSA (i.e. high-net-worth retail clients opting out) have to affi- liate to an ombudsman. FINMA adopted its regulation implementing the FinSA and FinIA on 12 November 2020. This encompasses a new implementing ordinance to the FinIA (FinIO-FINMA) as well as changes to existing FINMA ordinances and circulars. In addition, three circulars were repealed. The amendments entered into force on 1 January 2021. Under Article 26 FinIO-FINMA, asset managers, trustees, managers of collective assets, and fund management companies that were already licensed on this date have one year to comply with the new rules. https://www.finma.ch/en/news/2020/11/20201112-medienmitteilung-folgeregulierung-fidleg-finig/ Supported by a working group, the Executive Board is currently revising the Association’s self-regulation ma- terials and model documents in line with the FinSA and FinIA, the new CISA, and the related Federal Council and FINMA implementing provisions. The changes required must, as a rule, be recognized or acknowledged by FINMA. In addition, the new Ordinance to the Financial Market Supervision Act (FINMASA Ordinance) provides for further consultation procedures within the federal government in relation to FINMA’s recognition of the self-regulation materials. This means that the revised self-regulation materials, including the model do- cuments, cannot be published until the end of the second quarter of 2021 at the earliest. All existing SFAMA model documents can continue to be used until the two-year transition period ends on 1 January 2022. News Spring 2021 12
L-QIF The Federal Council adopted the dispatch on the limited qualified investor fund (L-QIF) on 19 August 2020. The L-QIF is a new category of fund that offers qualified investors an alternative to similar foreign products. The Asset Management Association, which originally came up with the idea, supports this project, the imple- mentation of which represents an important step toward strengthening the Swiss financial sector and enhan- cing Switzerland’s competitiveness as a location for funds and asset management. The L-QIF project got up and running quickly by Swiss standards. The Federal Council instructed the Federal Department of Finance (FDF) on 5 September 2018 to draft the necessary revision of the law. The idea also met with widespread support in parliament. The motion put forward by Ruedi Noser of the Council of States was passed with large majorities by the Council of States in September 2018 and by the National Council in March 2019. Broad support for the idea was also expressed in the consultation opened on 26 June 2019. Ho- wever, the Federal Council’s vote to adopt the dispatch was delayed by the coronavirus situation. To ensure that Switzerland can benefit from the enhanced competitiveness this innovation brings as soon as possible, it is now all the more important for parliament to debate and adopt the draft swiftly. The Association will conti- nue to lobby in favor of the draft while parliament is debating it. The Executive Board will be supported in this regard by a working group made up of specialists from member institutions. Since other issues are taking up more time as a result of COVID-19, the Council of States Economic Affairs and Taxation Committee (EATC-S) has postponed its discussion of the L-QIF once again. It is expected to address the topic in April or May this year. The draft can still realistically enter into force in 2022, although the second half of next year now seems more likely. More information on the L-QIF is available at the following link: https://www.am-switzerland.ch/association/en/regulierung/l-qif Sustainable finance: Federal Council’s next steps After adopting a report and guidelines on the subject in June 2020, the Federal Council fleshed out is pro- posals for a sustainable Swiss financial center on 11 December. They are intended to improve transparency, strengthen risk analysis, and expand Switzerland’s international commitment with the aim of building further on its position as a leading location for sustainable financial services. According to the Federal Council, the framework conditions should be designed to ensure that the competitiveness of the Swiss financial center is continuously improved and that the financial center can make an effective contribution to sustainability. Based on the joint findings of the State Secretariat for International Finance and the Federal Office for the Environment, it has adopted the following measures: The authorities are to prepare the binding implemen- tation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) by Swiss companies in all sectors of the economy. The SIF, in close cooperation with the FOEN, for instance, has until fall 2021 to propose to the Federal Council any necessary amendments to financial market legislation to pre- vent so-called greenwashing, i.e. feigned sustainable business activity in terms of environmental impact. The Federal Council recommends that financial market players publish methods and strategies for taking account of climate and environmental risks when managing their clients’ assets, in accordance with the existing legal duties of loyalty and diligence. Switzerland will step up its involvement in international environmental confe- rences and initiatives. The Association welcomes the Federal Council’s approach and the further involvement of the financial in- dustry. Disclosure obligations are crucial to maintaining and enhancing the international competitiveness of Switzerland’s overall economy. They should be prioritized in order to speed up the transition to a sustainable overall economy, and transparency is the key to successful implementation of sustainability criteria within News Spring 2021 13
companies. Standardized, measurable reporting is vital in this respect, but transparency also requires com- panies and research providers to make reliable, high-quality data available. The Asset Management Association/SSF Key Messages and Recommendations dated 16 June 2020 con- tain more detailed recommendations for implementing a sustainable investment policy throughout the entire investment process. In particular, they address the topics of transparency and reporting in relation to gover- nance, investment policy, investment strategy, and risk management. This includes information at the pro- duct and company levels and the publication of a sustainability policy. A joint Asset Management Association/ SSF working group is currently addressing the issue of “accurate information”. Switzerland’s international commitment in this regard is an important success factor for its reputation and competitiveness. Brexit: Switzerland/UK – bilateral agreement on financial services The United Kingdom left the EU on 31 January 2020. The Federal Council’s “Mind the Gap” strategy is aimed at ensuring legal continuity after Brexit. As part of this strategy, Switzerland moved at an early stage to conclude a series of new agreements with the UK concerning trade, migration, road and air traffic, and insurance. The strategy aims to safeguard the existing mutual rights and obligations as far as possible. In a second phase, cooperation between Switzer- land and the UK is to be stepped up where this is in both countries’ interests. This is referred to as “Mind the Gap Plus”. The Swiss and UK finance ministers signed a joint statement at a digital meeting on 30 June 2020 on dee- pening cooperation between the two nations in financial services. The two countries’ finance ministers met on 27 January 2021 and agreed a plan for talks on a financial services agreement up to the end of the year. The agreement is to be based on the principle of mutual recognition of financial market regulation and super- visory frameworks in the individual financial industries (banking, asset management, insurance, and market infrastructure). State Secretariat for International Finance The SFI Newsletter provides regular information on the latest news from the business areas covered by the State Secretariat for International Finance. It is published three to four times a year in German and French. https://www.sif.admin.ch/sif/en/home.html Documentation News Spring 2021 14
International Environment Sustainable finance: regulatory developments in the EU The European Commission published an action plan in March 2018 based on the recommendations put forward by the High-Level Expert Group (HLEG) on Sustainable Finance. The plan is aimed at reorienting capital flows toward sustainable investments, reducing the impact of climate change as well as social and ecological issues on the financial system, and fostering transparency and long-term financial thinking. The previous Commission (2014-2019) took extensive steps to put the plan into action. The new Commission (as of 2019) has additionally initiated a new growth strategy aimed at making the EU climate-neutral by 2050. Commission President Ursula von der Leyen describes the Green Deal as a growth strategy that will reduce emissions and create jobs. All current and future EU strategies and measures are to support the aims of the Green Deal. Implementing the measures on sustainable finance is seen as an important priority in this regard. As part of the Green Deal, the EU climate legislation currently under discussion will help to set out a clear fra- mework for an effective and fair transition to a low-carbon economy and make it calculable for investors. It will also ensure that all EU strategies contribute to the goal of climate-neutrality and that all sectors play their part. Implementing the EU action plan and the Green Deal requires a large number of strategies, initiatives, and measures. A selection of the related regulatory developments are outlined below. EU Disclosure Regulation Regulation (EU) 2019/2088 entered into force on 29 December 2019. It requires financial market participants and financial advisers to disclose very detailed information to all potential investors. The Regulation compri- ses rules on transparency with regard to the integration of sustainability risks in decision-making processes, the consideration of adverse sustainability impacts, and the provision of sustainability-related information with respect to financial products (publication on websites, transparency of pre-contractual information, disclosure in regular reports). The European Supervisory Authorities (ESAs) published draft regulatory technical standards (RTS) on 23 April 2020 that augment and add precision to the EU Disclosure Regulation. The public consultation ended on 1 September. The RTS contain proposals concerning the content, methodology, and presentation of ESG disclosures at both company and product levels. The consultation paper additionally includes proposals in line with the EU Taxonomy Regulation on applying the “do no significant harm” (DNSH) principle in reporting on adverse im- pacts. These are to be presented to the European Commission by the end of 2020. News Spring 2021 15
Next steps:
• The consultation on the RTS ended on 1 September 2020.
• The Commission then decided in October to postpone their entry into force, which had been planned for
March 2021. The European Supervisory Authorities (ESAs) published a final draft of the RTS on 4 February
2021, which must be implemented by 1 January 2022..
• Meanwhile, the Commission decided not to change the applicability of the Disclosure Regulation, which means:
o By 10 March 2021:
• Companies must publish on their websites information about their policy on the integration of sustai-
nability risks in their investment decision-making process or advisory process.
• Companies must publish on their websites their remuneration policy as well as information on how it
is consistent with the integration of sustainability risks.
• The following must also be disclosed in the pre-contractual information (e.g. the prospectus):
- the manner in which sustainability risks are integrated into their investment or advisory process and
- the results of the assessment of the likely impacts of sustainability risks on the returns of the finan-
cial products.
o 30 June 2021: Financial market participants with an average number of employees during the financial
year above 500 and parent companies of large groups with more than 500 employees on a consolidated
basis must publish and maintain on their websites a statement on their due diligence policies with respect
to the principal adverse impacts of investment decisions on sustainability factors.
o 1 January 2022: The obligation to publish periodic disclosure reports enters into force.
o 10 September 2022 and annually thereafter: EIOPA, ESMA, and the EBA must submit a report to the
Commission on best practices and make recommendations for voluntary reporting standards.
o 30 December 2022: The Commission will evaluate the application of the Regulation and determine whet-
her further legislative measures are required.
o 30 December 2022: According to Article 7, Financial Institutions will be expected to provide increased
transparency regarding adverse sustainability impacts at financial product level.
EU Taxonomy Regulation (EU) 2020/852
The European Parliament adopted the Taxonomy Regulation on 18 June 2020. The Regulation was publis-
hed in the Official Journal of the EU on 22 June and entered into force on 12 July.
The Taxonomy Regulation is intended to establish a unified classification system for defining environmentally sus-
tainable economic activities. It sets out a system for classifying economic activities that focuses on the following:
1) mitigating climate change; 2) adapting to climate change; 3) sustainable use and protection of water and marine
resources; 4) transition to a circular economy; 5) pollution prevention and control; and 6) protection and restoration
of biodiversity and ecosystems. The Regulation is intended to contribute to making the EU climate-neutral by 2050
as part of the Green Deal. It will also include disclosure requirements for investors and companies.
The European Commission has said that it intends to use the Taxonomy to develop the EU’s Green Bond
Standard and Ecolabel for Retail Financial Products.
Next steps:
• The European Commission intends to set out technical screening criteria (TSC) for specific activities in con
nection with the Taxonomy. The TSC will define quantitative and qualitative requirements that economic acti-
vities must meet in order to qualify as ecologically sustainable. They are expected to be adopted as follows:
o TSC for activities with a substantial contribution to climate change mitigation and adaptation will be pu-
blished by December 2020 and will enter into force by January 2022. In this respect, the Commission
will take account of the final report on the Taxonomy published by the Technical Expert Group (TEG) on
Sustainable Finance in June 2019.
o Additional TSC for activities with a substantial contribution to other environmental objectives (circular
economy, pollution prevention, protection of water, biodiversity, and ecosystems) will provisionally be
presented by December 2021 and enter into force in January 2023.
News Spring 2021 16• The TEG’s mandate was extended in an advisory capacity until September 2020. In fall 2020, the TEG was replaced by the Platform on Sustainable Finance, which supports the Commission in further developing and reviewing the TSC. The Platform’s mandate is to advise on the development of the TSC and to analyze their potential costs and benefits. • The European Supervisory Authorities’ consultation on the draft regulatory technical standards (RTS) under the EU Disclosure Regulation ended on 1 September 2020. The Regulation contains proposals for further specifying disclosures at product level in connection with the “do no significant harm” principle introduced by the Taxonomy Regulation. • The first company reports and investor disclosures in accordance with the Taxonomy Regulation are due at the start of 2022. In November 2020, the European Securities and Markets Authority (ESMA) published a consultation paper related to a draft advice to the European Commission on Article 8 of Regulation 2020/852. This article obliges undertakings covered by Directive 2013/34 to publish information in their non-financial statements on how and to what extent their activities are associated with economic activities that qualify as environmentally sus- tainable. Specifically, undertakings must disclose the taxonomy alignment of their turnover/revenues, capital expenditures, and operational expenditures. The draft advice concerns the content, presentation, and metho- dology of the information to be disclosed. ESMA will consider comments received by 4 December 2020. The Commission is expected to adopt the final version of the advice as a delegated act by 1 June 2021. In November 2020, The European Commission launched a public consultation concerning a draft delegated regulation on technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for de- termining whether that economic activity causes no significant harm to any of the other environmental objec- tives. The consultation runs until 18 December 2020. Amendments to UCITSD, AIFMD, and MiFID II The consultation on the long-awaited draft delegated acts relating to the UCITSD, AIFMD, and MiFID II (among others) was opened on 8 June 2020. It ended on 6 July 2020. The drafts are intended to incorporate sustainability factors into the UCITSD, AIFMD, and MiFID II in terms of product governance, suitability as- sessment, and organizational requirements. They are based on public consultations held in 2018 as well as ESMA’s final report and the draft delegated acts published in April 2019. The public consultation on the drafts ended on 6 July. It is highly probable that the amendments will not take effect before the end of 2021 or the start of 2022. The proposed amendments include a new definition of “sustainability preferences”, i.e. clients’ preferences for sustainable financial products and services. The definitions of sustainability criteria and factors are aligned with those in the EU Disclosure Regulation. News Spring 2021 17
ESMA on MMF ESMA on cross-border fund distribution
On 4 December 2020, the European Securities and On 1 February 2021, ESMA published a final re-
Markets Authority (ESMA) updated its validation ru- port on implementing technical standards (ITS)
les regarding the Money Market Fund Regulation under the Regulation on cross-border distribution
(MMFR). This relates to the requirements of Article of funds. The ITS focus on the publication of infor-
37 of MMFR that require MMF managers to submit mation by NCAs on their websites, the notification
data to National Competent Authorities (NCA), who of information by NCAs to ESMA and the publica-
will then transmit this to ESMA. tion of information by ESMA on its website.
https://www.esma.europa.eu/press-news/esma-news/esma- https://www.esma.europa.eu/sites/default/files/esma-34-45-
updates-reporting-under-money-market-funds-regulation 961_-_its_cross-border_distribution_of_funds.pdf
On 16 December 2020, ESMA published the 2020
update of guidelines on MMF stress tests under ESMA on ELTIF
MMFR. The updates take account of MMFs recent On 3 February 2021, ESMA sent a letter to the EC
experience during March 2020, particularly in rela- consultation on the review of the European Long
tion to redemption scenarios. Term Investment Funds (ELTIF) Regulation. In or-
https://www.esma.europa.eu/sites/default/files/library/ der to increase use of the ELTIF framework, ESMA
esma34-49-289_2020_guidelines_on_mmf_stress_tests.pdf proposes changes aimed at bringing ELTIFs more
in line with the needs of investors (both retail and
professional). This would make it a more attrac
ESMA on AIF leverage risk tive investment vehicle for professional investors,
On 17 December 2020, ESMA published its final as well as a potential savings’ placement alterna-
guidance to address leverage risks in the Alterna tive for retail investors, further improving the ac-
tive Investment Fund (AIF) sector. cess to funding for SMEs and enable the ELTIF
https://www.esma.europa.eu/sites/default/files/library/ framework to achieve its purpose of assisting in
esma34-32-552_final_report_guidelines_on_article_25_ the recovery of the European economy and in the
aifmd.pdf deepening of the Capital Markets Union.
https://www.esma.europa.eu/sites/default/files/library/
esma34-46-99_esma_response_on_eltif_review.pdf
ESMA on costs and fees of UCITS
On 6 January 2021, ESMA informed about its
launch of a Common Supervisory Action (CSA) ESAs on PRIIPs KID
with NCAs on the supervision of costs and fees of On 3 February 2021, the European Supervisory
UCITS across the EU. The CSA will be conducted Authorities - ESAs (the European Banking Autho
during 2021 and aims at assessing the compliance rity EBA, the European Insurance and Occupa-
of supervised entities with the relevant cost-related tional Pensions Authority EIOPA and ESMA)
provisions in the UCITS framework, and the obli- submitted to the EC draft Regulatory Technical
gation of not charging investors with undue costs. Standards (RTS) on amendments to the key in-
https://www.esma.europa.eu/press-news/esma-news/es- formation document for packaged retail and insu-
ma-launches-common-supervisory-action-ncas-supervision- rance-based investment products (PRIIPs).
costs-and-fees-ucits https://www.esma.europa.eu/sites/default/files/library/
jc_2020_66_final_report_on_draft_rts_to_amend_the_pri-
ips_kid.pdf
ESMA on ESG ratings and assessment tools
On 29 January 2021, ESMA wrote to the European
Commission (EC) sharing its views on the main
challenges in the area of ESG ratings and assess-
ment tools. ESMA highlights the need to match the
growth in demand for these products with appro-
priate regulatory requirements to ensure their qua-
lity and reliability.
https://www.esma.europa.eu/sites/default/files/library/
esma30-379-423_esma_letter_to_ec_on_esg_ratings.pdf
News Spring 2021 18ESAs on sustainability-related disclosures Along with ESMA, the other two ESAs published On 4 February 2021, the ESAs delivered to the their proposals also on 1 March 2021: EBA advice EC the final report, including the draft RTS, on and EIOPA advice. the content, methodologies and presentation of ESMA final report disclosures under the EU Regulation on sustaina- https://www.esma.europa.eu/sites/default/files/library/ bility-related disclosures in the financial services esma30-379-471_final_report_-_advice_on_article_8_of_ sector (SFDR). The proposed RTS aim to streng- the_taxonomy_regulation.pdf then protection for end-investors by improving EBA advice ESG disclosures to end-investors on the principal https://www.eba.europa.eu/eba-advises-commission-kpis- adverse impacts of investment decisions and on transparency-institutions’-environmentally-sustainable-acti- the sustainability features of a wide range of finan- vities cial products. This will help to respond to investor EIOPA advice demands for sustainable products and reduce the https://www.eiopa.europa.eu/content/eiopa-advises-insu- risk of greenwashing. rers-key-performance-indicators-sustainability-non-financial- https://www.esma.europa.eu/sites/default/files/library/ reporting_en jc_2021_03_joint_esas_final_report_on_rts_under_sfdr.pdf On 25 February 25, the ESAs issued a joint super- IOSCO on sustainability disclosure visory statement on the effective and consistent standards application and national supervision of the SFDR. On 24 February 2021, the International Organi- The statement aims to achieve an effective and zation of Securities Commissions (IOSCO) emp- consistent application and national supervision of hasised the urgent need for globally consistent, the SFDR, promoting a level playing field and pro- comparable, and reliable sustainability disclosure tecting investors. The ESAs recommend the draft standards and announced its priorities and vision RTS be used as a reference when applying the pro- for a Sustainability Standards Board under the visions of the SFDR in the interim period between IFRS Foundation. the application of SFDR (as of 10 March 2021) and https://www.iosco.org/news/pdf/IOSCONEWS594.pdf the application of the RTS at a later date. https://www.esma.europa.eu/sites/default/files/library/ jc_2021_06_joint_esas_supervisory_statement_-_sfdr.pdf ESMA rules for taxonomy-alignment under NFRD On 1 March 2021, ESMA published its final report on advice under Article 8 of the Taxonomy Regula- tion, which covers the information to be provided by non-financial undertakings and asset managers to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD). The re- commendations define the Key Performance Indi- cators (KPIs) disclosing how, and to what extent, the activities of businesses that fall within the scope of the NFRD qualify as environmentally sustainable under the Taxonomy Regulation. The key recom- mendations relate to the definitions to be used by non-financial undertakings for the calculation of the turnover KPI, the CapEx KPI and the OpEx KPI, and the KPI that asset managers should disclose. News Spring 2021 19
The Association’s Activities
Members Real Estate Funds
The Board of Directors and the Executive Board Roger Hennig
were pleased to welcome the following members to • Reviewing the Association’s product-specific gui-
the Association this winter: delines with reference to the FinSA and FinIA
• Energy Infrastructure Partners AG • Finalizing the consolidated draft of the Associa
• Intertrust (Switzerland) Ltd tion’s Guidelines for Real Estate Funds (inclu-
• ZZ Vermögensberatung (Switzerland) Ltd ding liaison with FINMA)
Processes & Operations
Specialist committees Samuel Mürner
The specialist committees essentially undertake • Changes to self-regulation in connection with the
the preparatory work for decisions relating to their FinSA/FinIA
specific areas, which they then submit to the Board
of Directors and the Executive Board. The indivi- Risk Management
dual committees were/are actively involved with the Robert Majewski
following issues. • Discussing risk management topics in view of the
new self-regulation materials
Alternative Investments • Sharing experience of risk management in con-
Régis Martin nection with the management of pension assets
• Reviewing performance and the outlook/trends in • Discussing key topics the committee will be ana-
alternative risk premiums and commodities lyzing in 2021 from a risk management perspec-
• •Hosting a webinar on the theme of sustainability tive, e.g. ESG risk and cyber risk
(SFDR) and alternative investments
• Discussing potential improvements in data quality Legal & Compliance
for hedge funds Diana Imbach
• Compensation from third parties under the FinSA
ETF et investissements indexés • FINMA Circular “Outsourcing”
Markus Götschi • Changes to self-regulation in connection with the
• Discussing listing possibilities for various unit FinSA/FinIA
classes • Risk tolerance of professional clients
• Discussing income distributions by ETFs/index
funds with a view to possibly amending the per-
formance guidelines
News Spring 2021 20Legal & Compliance Asset Management Jasmin Djalali • Discussing sustainable asset management, inclu- ding sharing experience of implementing the EU SFDR • Discussing the definition of prohibited leverage in infrastructure investments under OPO2 • Discussing various issues regarding the imple- mentation of the FinSA and FinIA, including sha- ring experience of adjusting organizational regu- lations and of the ombudsman system Taxes Hanspeter Kurz • Assisting with the review of the “model distribu- tion agreement” in line with the FinSA/FinIA (tax law perspective) • Drafting and submitting a response to the FTA’s consultation on changes to the practices of the main VAT department (focusing on the section on collective investment schemes in VAT Info 14 – Financial Sector) Distribution & Marketing Markus Signer • No activities at present Save the date for the following events: Swiss Funds & Asset Management Forum Friday, 24 September 2021 Hotel Bellevue Palace, Bern More detailed information on these events will be published on the Internet in due course. http://www.sfama.ch/en/events
Interesting Reading
Friends of Funds Maakt Magt (Unity Fosters Strength). This fund
The Asset Management Association Switzerland then invested in bonds of various governments
has a long-standing partnership with the neutral and banks and in West Indian credits. A few years
discussion forum Friends of Funds. The dates and before, numerous British banks had been plunged
topics set thus far are as follows: into insolvency after granting high loans to a small
number of colonies. Van Ketwich recognized that
Events in Zurich (cycle 36): broad diversification of risk was crucial in deter-
30.03.21 Fund platforms: operation, distribution, mining investment success and, as such, can be
usage, and data management regarded as the father of the philosophy of fund in-
27.04.21 New investment ideas: a flash in the pan vesting, so to speak. World Funds Day gives both
or stable return drivers? providers and associations (ours included) a plat-
01.06.21 Development in asset management – form to present information on the basic principle
the role of the associations behind investment funds.
29.06.21 How funds track climate change
M&A in 2021: asset management primed
Events in Geneva (cycle 15) for consolidation
08.06.21 Topic to be defined There were a record number of mergers and ac-
14.09.21 Topic to be defined quisitions in the asset management sector in 2020.
30.11.21 Topic to be defined Recent share price moves suggest investors are
betting on more to come.
Further information on the events in Zurich and Ge- https://www.ft.com/content/4d38b100-07de-400e-95b4-
neva, where available, can be found on the forum’s 3199837ea044
website, where documents such as studies, research
reports, PowerPoint presentations, and survey re- Global assets in sustainable funds hit
sults of partner companies can be downloaded. record high of USD 1.65 trillion
Morningstar has published its 4Q2020 look at sus-
Use of event calendar free of charge tainable fund flows globally, including sustainable
The Friends of Funds forum is continuing to offer an open-end funds and exchange-traded funds, fin-
independent calendar for fund and financial indus- ding that assets in sustainable funds hit a record
try events in Switzerland. high of $1.65trn, up 29% from the third-quarter.
http://www.friends-of-funds.ch/events/zürich/neue-veranstal- https://www.internationalinvestment.net/news/4026468/
tung-anmelden global-assets-sustainable-funds-hit-record-usd-65trn-mor-
ningstar
10th World Funds Day
The first World Funds Day took place on 19 April Die besten Schweizer Aktienfonds
2012. Why this date in particular? The answer is Aktiv handelnde Fondsmanager haben im volatilen
that the Amsterdam-based merchant A. van Ket- Börsenjahr 2020 ihren Vorteil ausgenutzt. Wer hat
wich was born on 19 April 1744, and in 1774 he was den Markt am deutlichsten geschlagen?
the first to bring together a broad group of investors https://www.fuw.ch/article/die-besten-schweizer-aktien-
who bought units in a type of fund called Eendragt fonds-2/
News Spring 2021 22Editorial team Asset Management Association Switzerland P.O. Box, CH - 4002 Basel Phone +41 61 278 98 00 office@am-switzerland.ch www.am-switzerland.ch Layout and implementation R Consult LLC Markus Röthlisberger P.O. Box 24, CH - 5022 Rombach Phone +41 62 827 37 47 roethlisberger@r-consult.ch Author‘s opinions Quoted articles or links to corresponding sources do not necessarily coincide with the views of the Association. Liability The Association accepts no liability whatsoever for the correctness of the text and fi gures stated in this pu- blication, in particular for contributions from third-party sources. The present English version is a translation of the original document in German Copyright The reprinting and reproduction of the content of this publication (including excerpts) are permitted provided the original source is acknowledged. Social Media Follow us on Twitter (@AM_Switzerland) to receive our tweets in English and German or join us on Linkedin. News Spring 2021 23
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