Against the backdrop of the financial crisis, which is still causing repercussions that are felt across Europe, Liechtenstein stands out as a rare beacon for investor confidence. High-performance banking, together with an AAA rating from S&P and the absence of government debt, make the country an ideal destination for financial services.
In Liechtenstein, comprehensive fiscal support and a wide spectrum of products are on offer in a setting of assurance and protection that is unmatched in the region. World Finance had the opportunity to speak with Alex Boss, Chairman of IFOS Executive Management since 2007, a wholly owned subsidiary of VP Bank, about what makes Liechtenstein so unique as a financial centre.
What, in your view, are Liechtenstein’s advantages as a financial centre?
Liechtenstein is characterised by high-quality products and services, coupled with state-of-the-art infrastructure. The low level of red tape makes it possible to set up companies and implement products quickly, while the stable Swiss franc, free market economic policies and consolidated privacy protection, are extremely advantageous.
Moreover, the country’s track record of political continuity and social stability, combined with high creditworthiness, add to the prosperity of the financial centre.
Liechtenstein is characterised by high-quality products and services, coupled with state-of-the-art infrastructure
What characterises Liechtenstein as an investment fund centre?
The Liechtenstein investment fund centre benefits from a stable high-performance banking system and moderate taxation. The state’s investment fund laws place particular importance upon investor protection, while state supervisory authorities and audit companies are in place to monitor compliance. Then there is Liechtenstein’s EEA membership and its implementation of EU investment fund directives, such as the undertakings for collective investment in transferable securities directive (UCITSD) and alternative investment fund managers directive (AIFMD), which enable simple and discrimination-free access to the European market. Furthermore, thanks to effective cooperation between public authorities and financial institutions, internationally compliant investment structures can be launched quickly and efficiently.
How does the VP Bank Group position itself in the Liechtenstein financial centre?
The VP Bank Group is an international bank that focuses on asset management for private individuals and intermediaries. It is one of the largest banks in Liechtenstein, with client assets that totalled CHF38.6bn ($42.4bn) at the end of 2014.
The VP Bank Group, which is listed on the SIX Swiss Exchange, also has representative offices in six countries around the world: Switzerland, Luxembourg, British Virgin Islands, Singapore, Hong Kong and Russia.
What is the position of Internationale Fonds Service (IFOS) within VP Fund Solutions and what services does it offer?
The VP Bank Group offers its range of investment fund services under the VP Fund Solutions label both in Liechtenstein and Luxembourg. Clients benefit from having a central interlocutor that can draw upon the services of experienced, multilingual specialists in order to objectively assess an investment fund project. IFOS is the investment fund competence centre within VP Fund Solutions that offers comprehensive support for establishing investment funds, which includes advice during concept development, drawing up legal documents and communicating with public authorities.
IFOS offers investment fund administration and management services, including licensing for public sales abroad, realising tax transparency and publicising investment fund prices. It also collects data, which it manages along with client websites, as well as providing accountancy services.
Additionally, IFOS is responsible for handling VP Bank’s range of investment funds and the selection of third-party funds for asset management purposes of the bank and its private clients. This means that we have a team of investment professionals at our disposal that truly understand client needs and can offer unique solutions. Finally, IFOS offers risk management for UCITS and AIF investment funds through an investment committee of experts.
There is also the Pricing Committee, which assesses private equity valuations and due diligence obligations in conjunction with illiquid assets – compliance and risk reports on each net asset value round off the range of services we offer.
What are the grounds for launching a private label investment fund?
The private label fund can be individually structured and licensed to include investment policy, asset management, fee structure, marketing, sales and labelling – all in accordance with statutory provisions. The product is transparent and supervised and can be licensed for sale within the EEA and Switzerland.
How will IFOS be positioned within the private label investment fund unit in future?
IFOS currently has approximately CHF3bn ($3.3bn) assets under management in around 90 sub-funds under Liechtenstein jurisdiction; we continue to view both professionally established and managed investment funds as markets for growth. As an expert partner, IFOS serves asset managers and companies in particular who wish to realise infrastructure and real estate projects in the form of investment fund solutions.
What is your view of current regulatory developments within the context of European financial and economic policy?
The repercussions of the financial and economic crisis continue to be felt deeply in the real European economy to this day. When it broke out, the EU identified inconsistent rules, regulatory loopholes and unregulated markets as the core problem facing financial market policy. As a consequence, the EU reinforced its efforts to standardise the conditions for financial and capital markets, while at the same time created more coherent regulatory criteria for member states.
One of the first far-reaching EU measures created was the AIFMD, which was new in that it aimed to regulate the managers of alternative investments – their managed products are only regulated indirectly. This directive represented the start of further regulatory measures aimed at strengthening the single European capital market. Within the Common Monetary Union, this also saw the creation of more coherent standards, such as European venture capital funds and European social entrepreneurship funds.
What impact are these regulatory developments having on your current and future field of business?
Through ManCo, we were one of the first management companies in Liechtenstein to acquire the AIFM licence in 2013. Our aim is to extend our relevant business fields, boost professionalism and widen the spectrum of services for current and future clients.
Following implementation of the EU passport in Liechtenstein, which we are expecting this year, it is essentially the case that all directives relevant for the EEA will need to be implemented in Liechtenstein also. One of the major benefits for us is that investment funds domiciled in Liechtenstein will become market-compliant for the entire EEA.
What is your view of the current market environment for investors?
In historic terms, stock market valuations are high – at the same time, commodities and interest rates are low. Due to pricey bonds and low to negative interest rates, investors cannot expect them to be risk-free; instead, they can only expect interest-free risks. In this environment, private investors are finding it difficult to judge markets correctly and consequently, they are hesitant about making new investments. Institutional and professional investors face the problem of having to generate risk-adjusted returns because they are no longer receiving the necessary yields on bond markets, while the allocation ratios of their portfolios are already saturated with traditional investment instruments. As pension funds and insurers need to generate long-term returns, currently, traditional investment forms are relatively unsuitable. There are some movements towards short-term investments, which can be difficult to square with the ultimate purpose of capital markets: financing growth in the real economy.
What is the situation in Europe, and how is the EU responding?
The economic and financial crisis affected the ability of the financial sector to direct resources to the real economy, especially in long-term investments. A heavy dependency on intermediation among banks, in conjunction with deleveraging and lower investor confidence, led to a decline in funding for all economic sectors. Within this environment the European Commission announced that job creation and boosting competitiveness were among its main priorities, resulting in a series of initiatives, such as Europe 2020, Connecting Europe, Innovation Union and 2030 Climate and Energy Package. Other programmes launched aim at promoting R&D, SMEs, a low-carbon economy and infrastructure development.
These programmes identify the investment measures required to restore growth and competitiveness and also highlight alternative channels of finance. However, investors with a longer-term horizon, for example pension funds and insurers, did not necessarily have access to coherent pooling mechanisms within EU member states at the time. In response to this, a uniform cross-border product framework was created, called European Long Term Investment Funds, which is designed to encourage demand from both institutional and small investors.
How are you preparing for these trends?
In our view, not least on account of the pronounced political determination of the EU, there is likely to be a greater trend towards long-term investments, in particular in infrastructure, private equity and real estate. To prepare, in addition to our services in the UCITS segment, we are expanding IT systems, resources and capacities in these fields.
We are also enhancing the professionalism of our services in the fields of risk management, investment management, taxes and administration. In this conjunction, we are focusing on the client segments of initiators and investment managers, as well as family offices, portfolio managers and ultra-high-net-worth individuals (UHNWIs). In the case of UHNWIs, we are developing innovative investment funds and configurations based upon the new regulatory framework.