Category: Blog Articles

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Digitization is advancing in many areas of life, and exciting innovations are also emerging in the field of asset management that are worth keeping an eye on. But there are still plenty of unanswered questions. Whether legal and technical matters, challenges with regard to the security offered or aspects concerning support.

We give you a comprehensive overview of the dynamic field of digital asset management and clarify the most important points. Because one thing is already certain today. This change is here to stay.

But what exactly is meant by the term digital asset management anyway? We explain and point out the main stumbling blocks.

The most important things at a glance

• Lower costs, absolute transparency and efficient processes on top – these are just some of the advantages that digital asset management has to offer these days.
• Although the positive aspects of this form of money management are obvious, and more and more customers are also longing for online solutions, the range of products on offer is not yet all that great.
• In most cases, however, the reason for this is not the unwillingness on the part of asset managers, but rather the lack of a technical basis. In many places, there is still a lack of the necessary digital infrastructure to be able to offer such solutions at all.

What is digital asset management?

Incorrectly, asset management and investment advice are often mentioned in the same breath. However, this is not correct. Important differences keep the two types apart, and it’s important to keep them in mind.

• In the case of investment advice, the advisor provides the customer with assessments and recommendations on investment opportunities. The customer itself makes however at the end the decision whether and which concrete investment is to be transacted and must these also in order give.
• In contrast to this, however, the asset manager is expressly permitted to make independent decisions on the financial markets on behalf of his client and to execute these decisions by means of corresponding transactions. However, before funds are actually invested, there is first a far-reaching evaluation of the individual situation, which also takes into account the client’s risk-bearing capacity and wishes.

So much for the basics. But what exactly is digital asset management, which has been mentioned more frequently recently? What are its opportunities and advantages? Are there possibly also risks that cannot be ignored? We have listed the essential points for you below.

Online accessibility

You just want to take a look at your portfolio to check the impact of the recent price turbulences on your personal portfolio? But at the same time, you don’t feel like contacting your asset manager first? Now, digitally, that’s no longer a problem. Both the account and all other important processes can be accessed via the Internet without much effort.

Good service

This should be a matter of course, especially in the high-end sector. Nevertheless, this is unfortunately not always the case. Especially because investment is a very sensitive area, expert advice is always welcome. However, anyone who believes that help is only available in person is very much mistaken. Of course, you are not left alone in digital asset management either. The assistance here looks quite simply different. From uncomplicated chats to classic phone calls and video calls, virtually anything is possible.

Uncomplicated decisions

It is clear that one should always coordinate well before making decisions with far-reaching consequences. Thanks to digital asset and wealth management, however, it is possible not to get stuck in deadlocked structures, but to break new and more innovative ground. Today, processes are simply solved online instead of through countless stacks of paper, where the overview is quickly lost.

High functionality

A good digital asset manager is always where you are. Laptop, smartphone or tablet. Diverse digital devices come into question for this purpose. They allow you to have control over your financial matters virtually anytime and anywhere. This also allows you to react quickly in an emergency should there be any important changes. By the way, you should make sure that your digital asset manager does not only work on the desktop.

Modern right from the start

Even the onboarding process runs completely digitally, so that superfluous paperwork can be dispensed with. Once everything important has been set up, professional investing can virtually get underway. Simple, online and, above all, forward-looking.

Digital asset management and banking have long been on the rise

The Corona pandemic revealed in a sometimes painful way the great potential for digitization that has been wasted or insufficiently exploited to date. In the wake of the crisis, however, many companies in Switzerland and around the world switched to online-based means of cooperation. The result was clear. It was also possible to collaborate excellently via digital means without missing out on results.

• It is already predicted that these changes are here to stay. The financial sector, and asset managers in particular, will therefore also have to present themselves increasingly digitally in the future.
• If we take a look at the Far East, we see that mobile banking has long played a key role there. The young and, above all, tech-savvy population has obviously understood and internalized the advantages of digital channels.
• South Korea is a case in point. Here, more than 97% use a smartphone, of which just under 76.5% make use of the advantages of mobile banking. But there are a whole host of other exciting statistics that are worth listing.
• These include the fact that around a quarter of all customers would like to do without physical bank branches in the future. This was reported by e-commerce magazine in February 2022.
• It also states that in the course of the global pandemic, just under 17% of German bank customers have come into contact with digital options for the first time. The majority of these newcomers rated the customer experience as positive.
• With a view to the young generation, which is also often referred to as digital natives, it is already clear that the trend toward digital banking and mobile asset management will intensify significantly in the coming years and decades. Providers who want to survive here should therefore already set the necessary course today.

Are robo-advisors digital asset management?

To begin with, the answer is a resounding yes. However, breaking down the term can cause confusion here.

• A robo-advisor is not an advisor, as one might expect. Rather, it is a digital asset manager that uses artificial intelligence (hence robo as in robot) to invest money automatically.
• The way it works is quite simple. After initially answering a few important questions, the robo-advisor compiles a portfolio according to quantitative criteria. Fees and transactions are negligible with this type of investment, averaging one percent or less per year.
• In return, the investor gets easy access to a diversified investment portfolio. This alternative has proved particularly popular with newcomers to the stock market. Those who prefer personal exchanges will find it rather difficult.

Important elements in digital asset management

What is urgent to pay attention to if you want to rely on digital solutions when it comes to investing? Which features should definitely be present and what makes a really good offer? We have summarized the key points for you.

What does the website look like?

Often, the homepage is considered the first port of call for prospective customers. If it is not immediately convincing, many people feel uneasy – after all, nothing less than their own financial investment is at stake.

In this context, it is important to check whether it is important to have a customer login via the website that allows access to the account and securities account, among other things. Not all providers support this, but offer customer access exclusively via an app. The information content of the website is also relevant. Is there a blog, for example, or are they content with the absolutely necessary data?

Is an app available?

This criterion may not be a necessity. However, a digital asset manager who also provides his clients with an app is a sign of professionalism. Of course, the app must also be able to do something. Above all, you should be able to access the securities account to see any relevant information at any time. Things like deposits or transfers should also be possible via the app.

Is the compatibility convincing?

No matter how beautifully the website is designed, no matter how innovative the app appears. If the tools end up having significant deficits in practice, no one is really helped. You should therefore make sure that the applications are easy to use from home and that you don’t have to call on external help for every step.

What does the service and support have to offer?

Questions arise from time to time. It’s good to have professional help on hand in such a case. With digital asset managers, it is particularly important to be able to communicate with experts via various channels such as chats, e-mails or video calls. So these options should definitely be available. It is also important to ask yourself whether it is okay to talk to a call center or general customer support, or whether you prefer to be able to contact a personal contact person at any time.

What are the general conditions?

Data protection is considered the be-all and end-all, especially when it comes to sensitive topics like money. Accordingly, a trustworthy digital asset manager absolutely ensures that all information is protected against potential hacker attacks in the best possible way. Prospective customers should also consider whether and how well the paperless processing of the service works. Does everything already run online or do many things have to be printed out first?

Setting the course for the future with digital wealth management

The death of the branch banking network is already in full swing, and is thus visibly affecting traditional asset managers as well. Potentially short distances can no longer be maintained if the local bank of trust closes its doors. With a digital solution, it doesn’t have to come to that.

Here, professional money management is combined with the advantages of flexibility in terms of location and time. Looking at the securities account, checking incoming payments or setting up a new order – everything can be done easily and without any opening hours. And on top of that, it’s environmentally friendly because it saves paper. There is also an enormous advantage that should not be overlooked.

Digitization enables a high degree of efficiency, which means that asset managers can also work in a more targeted and thus more cost-effective manner. This in turn has a direct impact on the minimum capital required. The entry threshold is therefore lowered and digital asset managers become accessible to broader sections of the population.

Read on in our journal:

• Background on private equity
• More about private banking
• Switzerland’s 3-pillar principle
• Types of asset management mandates

Reading Time: 8 minutes

Retirement provision is an important basic building block for financial security in old age. According to a recent study by Generali Versicherung, for example, 43% of Swiss women do not provide for old age. Men are also affected – albeit to a lesser extent. But without appropriate provision, there is a gap in provision: Salaries fall away, which is only compensated for to a fraction by the pension fund. As a result, the accustomed standard of living can often no longer be maintained. How can you make provisions for your old age – and even save taxes at the same time? And how can you take advantage of current developments in the money and capital markets?

In this article, we answer key questions about Pillar 3a with regard to taxation, payouts, investment forms and other basic knowledge.

The most important at a glance

• The Swiss pension system is based on 3 pillars. The aim of these pillars is to provide financial security – whether for an emergency situation or for retirement.
• Pillar 3a is the so-called “tied pension” and falls under private pension provision. Classically, these investments used to be made in savings accounts. However, the interest rates on these accounts have fallen sharply in recent years: most providers now offer an interest rate of 0.1% or less, with a maximum of 0.5%.
• A comparison of the different providers is therefore definitely worthwhile. However, it is not only the interest rate that you should look at. Other factors such as the risk of an investment or hidden costs must also be taken into account.

(Video in german language)

Pillar 3a in the 3 Pillars Principle

The pension system in Switzerland is divided into 3 pillars. The first pillar comprises – in a very simplified form – the state pension scheme, which is expressed, for example, in the form of survivors’ insurance and disability insurance. The second pillar essentially comprises the occupational pension plan, which, in addition to the pension fund, also includes various health and accident insurances. The third pillar is private pension provision. It is voluntary and can be adapted to individual needs.

This third pillar is subdivided once again into pillar 3a (so-called “tied pension“) and pillar 3b (free pension). The big difference lies in the tax incentives and the tied use. Payments into pillar 3a are capped in terms of amount, but can be deducted from taxable income and are tied to retirement provision. Payments into pillar 3b are not tax-deductible, but can be used more flexibly and are not capped in terms of amount. You can determine the payout point of pillar 3b yourself and do not need to worry about downstream taxation.

Maximum amount Pillar 3a

What is the maximum amount that can be paid into pillar 3a?

As already mentioned, pillar 3a is linked to retirement provision. Since the annual contributions can be deducted from taxable income, the possible deposit is limited to a certain amount. This is set anew each year by the tax authorities. In addition, the possible payment depends on whether you are an employee and therefore affiliated with a pension fund or whether you are self-employed and do not belong to such an institution.

The maximum amount for salaried employees is currently CHF 6‘883. Self-employed employees can pay up to 20% of their net income into a pension plan. However, there is also a maximum ceiling here: the limit is 34‘416 Swiss francs. The sums mentioned refer to the year 2021. For the year 2022, the tax office has already announced that the upper limits will remain the same.

Read more about the maximum amount for pillar 3a here.

Taxing of Pillar 3a

How is pillar 3a taxed?

Payments into a 3a retirement savings contract can be reported in the annual tax return. These reduce the taxable income. But how much can you actually save in taxes? It is not possible to make a blanket statement about this – the tax savings depend on various factors. In particular, your place of residence, marital status, and income have a significant influence on tax savings. To give you an opportunity for comparison, we will assume that an employee has made the maximum possible contribution of CHF 6‘883. He had a taxable annual income of 75‘000 francs.

As a married person in Appenzell, this employee comes to a saving of just over 1‘050 francs, while as a married person in Geneva he can expect to save over 2‘100 francs. The difference becomes even more pronounced when income rises to 100‘000 francs: The married employee in Zug receives 853 francs back from the taxman, while the single person from Sion receives a scant 2‘500 francs.

However, when the credit is paid out, the full amount is subject to taxation. Here, too, it depends on the location of the contract holder. For the calculation, the total amount of the contract is converted into a theoretical annuity. This is then taxed. The pension conversion rate used to calculate this pension varies from canton to canton.

Payout Pillar 3a

When is the Pillar 3a paid out?

Pillar 3a payouts can be divided into ordinary and extraordinary payouts. The most common cause is the ordinary payout. In this case, the saved capital is paid out to the contract holder at the specified time. This is possible at the earliest five years before and at the latest five years after retirement age. For women, this means that withdrawal is possible at the earliest at the age of 59 and at the latest at the age of 69; for men, the period is shifted back by one year to 60 and 70 years respectively.

In some cases, however, an advance withdrawal of the capital is possible. For example, if you want to buy or build a property for your own use, you can withdraw the capital from the tied pension plan. Another possible reason is the repayment of a mortgage loan. Also, if you take the step of becoming self-employed, you can use the saved capital for your investments – or if you are already self-employed and take up another activity. There are other permissible reasons for withdrawing pension capital:

• Leaving Switzerland
• Drawing disability pension
• Purchase into a 2nd pillar pension plan

Reading tip: Financial Advice for Women

Pillar 3a comparison

Most investments in pillar 3a are still made in savings accounts at banks. A large-scale 3a comparison of 80 banks showed that the average interest rate is just 0.11%. This not only means that the capital hardly increases during the investment period. If you include inflation (i.e. the loss of purchasing power of money), you end up with a negative return. Below is a small selection of banks with interest rates on savings accounts:

• Caisse d’Epargne d’Aubonne société coopérative: 0.5 %
• Burgerliche Ersparniskasse Bern, Genossenschaft: 0.3 %
• Crédit Agricole next bank (Suisse) SA: 0.25 %
• Basellandschaftliche Kantonalbank: 0.15 %
• Bank Cler AG: 0.1 %
• Bank Sparhafen Zürich AG: 0.1 %
• Bernerland Bank AG: 0.05 %
• Credit Suisse AG: 0.05 %
• Zürcher Kantonalbank: 0.05 %
• Alternative Bank Schweiz AG: 0.00 %

Securities funds have become established in recent years as an alternative to interest accounts. These offer a better return in the current market environment but are susceptible to fluctuations. You should therefore find out about the specific offer in advance: How high is the equity component? What fees will be charged? Are these payable once or on an ongoing basis? Even the best market performance can be eaten up by ongoing costs.

Tips and FAQ

What forms of investment are permitted?

Not every form of investment is eligible for tied pension provision. First of all, you have to decide which settlement partner you want to be served by: Insurance or bank? Financial service providers know the conditions behind pillar 3a and can recommend appropriate products to you. If you decide on a bank, you have the choice between an interest account (which, as already mentioned, earns very little interest) or an investment in a securities account. If you prefer a life insurance policy, you can choose between a fixed-interest policy (with the possibility of surpluses) or a unit-linked policy – which basically works in a similar way to the fund custody account at the bank.

Is the risk the same for every investment?

Every investment carries its own risks; there is no such thing as a completely risk-free investment. If you invest the money in a bank or insurance company, there is always the (theoretical) risk of default on the part of the institution. Apart from that, you receive a fixed interest rate, but this does not compensate for inflation by far. In concrete terms, this means that you can buy less of your capital when it is paid out than when it is consumed immediately. Fund-linked investments have the risk of fluctuation because the value of securities is constantly changing. Depending on the fund, there may also be a cluster risk – namely, if most of the capital is invested in a particular sector. Please also read our article on pillar 3a funds.

What about taxes?

A state-subsidized investment on 3a investments is exempt from tax in the deposit phase. This means that you can declare the annual payments up to the specified upper limit in your tax return and receive a pro-rata refund of the tax paid. This means you save twice: you provide for your financial security in old age and save taxes at the same time. Of course, you cannot avoid the tax office altogether: the investments are taxed on a deferred basis. This means that taxes are due when the capital is paid out – but at the personal tax rate applicable at that time. Since this rate is generally lower than the tax rate when the capital is paid in, you have to pay less tax overall.

What is the recommended investment period?

In principle, it is always a good idea to make financial provisions for old age – the investment period plays a subordinate role here. However, it is also clear that the longer a contract runs, the more capital is accumulated in the end – and the greater the effect of compound interest. For short terms of less than 5 to 10 years, you should opt for a fixed-interest contract (despite the low-interest rates). This is because it may not be possible to “recoup” a negative development on the money and capital markets within this relatively short period of time – and you effectively lose money.

However, with a term of 10, 20, or even more years, it is worth investing in a unit-linked investment. In this case, interim market slumps are no cause for concern – on the contrary, these developments ensure that you can buy back into the market at a favorable price. Over the long term, investing in securities has always beaten the “classic” investments in terms of performance.

Conclusion & Outlook

The advantages for saving in pillar 3a are obvious: tax advantages as well as long-term asset accumulation for retirement provision form an excellent combination. But in addition to state-subsidized, tied pension provision, there is also free pension provision (pillar 3b). This is an interesting alternative. Although it is not subsidized by the state, it is not capped in terms of amount. A recent evaluation came to the conclusion that fund-based Pillar 3b investments have actually performed better in recent years than comparable Pillar 3a investments. It is therefore, worthwhile to compare here and – if possible – to split the investments between different pillars.

The interest rate trend of recent years is expected to continue in the coming years. It is true that central banks are now moving to increase key interest rates. But in view of the high inflation rates, even a slightly higher savings interest rate will not be able to compensate for the resulting gap. So if you’re aiming for a longer-term investment horizon (i.e., 10 years or more), it pays to invest in a unit-linked retirement plan. In this way, you invest in company assets that also increase in value despite inflation. As a general rule, the longer the contract runs, the higher the equity component may be.

Continue reading in our journal:

• Switzerland’s vested benefits principle
• Tips on the vested benefits account
• Private financial planning: Here’s how

Reading Time: 9 minutes

Butlers and chambermaids have become rare, which cannot be explained by lowered expectations of the rich and super-rich. The situation: concentration and increase in wealth on the one hand and skepticism toward established financial advisors and banks on the other. The demands have grown and in the last ten years have caused an industry to grow: the family office. Without bank guidelines, specialists there take care of the preservation of large family assets.

But why are family offices often more suitable for entrepreneurs to preserve what they have created than traditional asset managers?

The most important at a glance

• A family office is a company that manages large assets of an owner family.
• In comparison to traditional asset management, the family office takes on additional activities related to the assets. These include, for example, the development of suitable investment strategies, controlling, administration or mediation in the case of far-reaching decisions.
• Above all, better control and the authority to issue instructions to the players are among the main advantages.
• There are so-called single family offices and multi family offices. The difference is whether the assets of one party are managed by several parties.
• Everon makes possible what was previously only open to wealthy families. Wealth management via a Multi Family Offices for normal earners and access to first-class financial products.

Family Office: Definition & History

The term family office is not clearly defined. In general, it is understood to mean a company that manages large private assets independently of banks. The priority is to preserve the assets and, ideally, to increase them. To this end, specialists develop suitable strategies and take care of legally compliant investments.

The essential difference to the classical asset management, for example at a bank: The asset managers of a bank are under instruction and control of the bank. The family office is exclusively bound to the instructions of the owner family.

The idea from America: separate family companies for optimal management of family assets

In 1838, the Morgan family of entrepreneurs founded the first family-owned company to manage their assets: “House of Morgan” was thus the first family office. The Rockefeller family followed suit with the founding of their family office in 1882. Over the years, more and more wealthy families followed these examples.

Single Family Offices and Multi Family Offices

Since the term family office is not defined by law, you will find different organizational forms in practice. One important distinction is the number of families per office.

Single Family Office

In a single family office (SFO), only the assets of one family are managed. It is either integrated into the company as an “embedded SFO“, or the company is managed separately.

Multi Family Office

Families with assets of around 15 million swiss francs or more can call on the services of a so-called Multi Family Office (MFO) to manage their assets. These are service providers with a high level of expertise in the management of large family assets. The main difference to a single family office is that they work for several families.

The experts working for a multi family office have usually acquired their expertise at banks or management consultancies. Multi family offices often emerge from single family offices, which today also make their organization and know-how available to external clients.

The essential services at a glance

Compared to other asset managers, such as banks, family offices have a different approach: In most cases, an independent and individually operating family office does not sell its own products. When compiling the service catalog, the interests of the family are what count first and foremost, detached from yield optimization. It is therefore about the holistic approach, which clearly goes beyond short-term profitability. The family office acts in the interest of the family’s long-term wealth preservation and involves external specialists where appropriate.

The classic tasks of the family office are:

• Developing and planning investment strategies for the assets
• Implementation of the strategies in the form of fiduciary transactions
• Consolidation of different asset areas
• Monitoring performance and developing a reporting system
• Legal and tax advice
• Planning of succession and inheritance (acting as mediator between the parties involved, if required)
• Establishment of foundations
• Administration including accounting for the assets
• Establishing risk parameters and monitoring them
• Planning and execution of charitable engagements
• Real estate management
• Personal services such as travel arrangements for family members or assistance with health care proxies

Since the tasks are based on the requirements of the respective families, the list can be expanded as needed. The assumption of partial tasks is also conceivable.

The differences: family office vs. asset manager

The tasks of a family office are not regulated by law in Switzerland. However, there are associations in which interests are bundled and requirements for new members are defined.

In these associations, the admission requirements for new members are clearly regulated. These aspects often come into play:

• Independence of the institution: The focus of the company should be exclusively on the family office service. Thus, it must not be a partial service of a provider offering other services, such as tax advisors or banks.
• Focus on total assets: The holistic management of the family’s assets is an essential characteristic of the family office. It offers not only special services, such as the management of the securities portfolio or real estate management. Consulting services, administration, management and controlling are performed for all asset classes.
• Monitoring functions as well as coordination: The family office advises and assists in the selection of providers and coordinates as well as controls the commissioned services. The players do not conduct their own asset management and do not broker any financial products themselves.
• Fee compensation and revenue transparency: Fee compensation by the commissioning family dominates. Any commission payments from third parties must be fully disclosed and may only be collected after consultation with the family receiving the service.
• Congruence of interests: The activities of the family office are exclusively focused on the interests of the family in question. Own business interests are put aside.
• Impeccable reputation: The seriousness is confirmed by a reputation confirmation of established members of the association.
• Code of honor: This confirms the observance of ethical principles, which are documented in the association’s statutes.

The independence as well as the overall asset focus show: The services cover all issues and tasks that arise with assets. For example, in the case of a real estate investment, it is not only the expected return that counts. Tax issues and questions relating to inheritance, property management and the overall structure of the assets are also taken into account. The consulting services are thus also always aimed at the possible effects of future generations.

In refraining from operational activities for Multi Family Offices, the increased concern for security is taken into account. While decent returns are desirable, the priority is asset preservation.

Legal requirements

FINMA has dealt with the licensing requirements for family offices. To this end, family offices must meet personal, financial and organizational requirements. These regulations include risk control, experience and suitability of the management, collateral or professional liability, minimum capital and proof that they are supervised by a supervisory organization.

Compared to traditional asset management, family offices provide a whole range of additional services for the families they serve. For this reason, a distinction must be made between multi-family offices with regard to the obligation to obtain a license. Not all activities offered are subject to licensing. This is relevant, for example, if no operational activities are performed, as described above under point 3.

In Switzerland, the individual activities must also be considered. According to this, there are obligations to join a self-regulatory organization (SRO) to combat money laundering or to submit to the Swiss Financial Market Supervisory Authority FINMA. Furthermore, an AMLA officer must be appointed with the obligation to attend annual money laundering training courses.

The investment forms show the long-term strategies

The “Global Family Office Report” was created in 2020 from a survey of 121 family offices. The results provide information on the most important investment forms and you can see the ranking of the asset classes below:

• Equities (29 %)
• Bonds (17 %)
• Private equity (16 %)
• Real estate (14 %)
• Liquidity (13 %)
• Other (11 %)

Other statistics also confirm that family offices invest money where it can grow safely over the long term. The principle applies: “We do not speculate with large assets“. Therefore, shares, real estate as well as company participations dominate. The addition of a relatively high proportion of bonds underlines the security aspect. In the real estate asset class, family offices are also increasingly shifting from commercial real estate, which is difficult to calculate, to residential real estate.

Family offices have evolved into large investors that increasingly participate in start-ups (venture capital) with risk capital. Here, their experience as their own entrepreneurs plays a major role in assessing the commitments. Finally, they use their entrepreneurial expertise in this way to positively influence returns as part of a balanced investment mix. In general, one of the considerable advantages is that you can influence the investment forms yourself, compared to a traditional asset manager.

Under which conditions is a family office worthwhile

The staffing of a family office adapts flexibly to the needs of the asset owners. In addition to the holistic and interest-congruent approach, cost advantages can play a role. However, it is not only prominent operators of their own family office, such as the Swiss pharmaceutical billionaire Hoffmanns family (Roche) or Sandoz, who enjoy the advantages of self-determined asset management. The various forms of organization, especially in the area of multi family offices, enable an increasing number of asset owners to manage their assets independently of banks.

Single Family Office

Without a doubt, the Single Family Office is the highest form of independence. Since this involves fixed costs, experience has shown that it can be operated in a commercially sensible manner for assets of around 250 million or more.

Multi Family Office

From assets of around 15 million, you can have them managed by a Multi Family Office. The market for providers has grown in line with the increasing demand. It is not only service providers that have evolved from a single family office that offer asset management. In recent years, new multi family offices have also emerged independently of families.

The market is growing and attracting more interested parties

Progressive digitization has now even found its way into individual wealth management. This by no means only refers to the robo advisors that have emerged in recent years.

The family office market is also evolving and is now not just the preserve of high earners. Everon is one of the first digital family offices, with the fundamental difference that asset management is now also open to normal earners.

family office organization is the foundation of efficient and secure wealth management

One of the greatest advantages of the family office is the comprehensive control over one’s own assets. In the case of a single family office, this control is exercised by specialists who report to the asset owner.

Many accounting firms maintain specialist departments that assist the owners by providing professional know-how during the formation process.

In the Multi Family Office, the separation of consulting and operational business is the best form of security, even according to some solid providers. This also guarantees asset management that is congruent with interests. You should always be critical of providers who launch or broker their own financial products.

Switzerland as a financial center: high in the ranking of family offices

The worldwide increase in assets has triggered a boom in family offices in connection with the financial crisis. The published figures are based on estimates and are therefore inconsistent. While some talk of a good 4,000 providers in Europe, others assume 7,300. What is uniform, however, is the description of a clear upward trend.

In Europe, Switzerland – along with Great Britain and Germany – is very popular. The American management consultant Celent describes Switzerland as the hub for family offices in Europe. The market is best developed here and shows enormous growth potential. Big names from Switzerland have their own family offices here. In addition, the list of offices includes no less well-known personalities from Germany, Italy, Greece and France. They prefer to draw on the expertise of employees from Switzerland. Among them are not infrequently portfolio managers from major banks.

The main advantages of the family office

The particular advantage of having your own family office is the optimal control over your own assets. An efficiently structured family office ensures management that is congruent with the interests of the family in a way that the direct link between the bank and the family cannot. It allows an individual control of the assets in the sense of the family. With a well-organized family office, there are no hidden fees and the total costs are usually more favorable above a certain level of assets.

Conclusion

With a family office, you lay the foundation for organizing wealth management. What was previously reserved for wealthy families is already possible for consumers with medium capital with digital providers such as Everon.

The structure of the assets is thus not based on fixed parameters as they arise from the offers of the providers of financial products. Instead, all strategic considerations focus exclusively on the individual interests of the family or investors. This includes one of the biggest challenges of large family businesses: succession.

You, as the owner of the assets, set the return expectations and are not guided by the benchmarks of the major indexes. It should be noted that with a family office, especially with large assets, the return is already positively influenced by cost advantages.

Family offices are now regarded as welcome investors. Banks have set up their own departments to look after them. Advisors know that family office players bring a high level of expertise and are used to having investments tailored for them. The relationship is reversing: The family office constructs an investment and several banks compete for the contract. As a result, the banks’ margins are crumbling in favor of many family offices’ returns.

The concept of asset protection can be viewed from many perspectives. If you, as a wealthy family, want to sustainably secure the lifestyle you have achieved, preserve what you have created, and think across generations, a family office is the optimal instrument for this.

Continue reading in our journal:

• More about digital wealth management
• Background on private banking
• More about long-term investments
• Types of asset management mandates

Reading Time: 10 minutes

In 1995, the Vested Benefits Act (FZG) regulated vesting in the event that the insured person leaves the pension fund before the insured event occurs. This means maximum flexibility of the second pillar of Swiss pension provision and avoids disadvantages in the event of career changes. To this end, the accrued pension assets are transferred in the event of a change of benefits provider. Important: In many cases, the vested benefit credit cannot be transferred directly to a new pension fund. If this is the case, a vested benefits account must be opened, for which the insured persons themselves are responsible. It may therefore be worthwhile to find out what is available in the vested benefits area at an early stage.

In the following, we offer background information and important tips on vested benefits accounts in Switzerland.

The most important at a glance

• If the pension capital from the second pillar (occupational pension plan) cannot be transferred directly to another benefit provider in the event of a change in occupation, it must be parked temporarily in vested benefits accounts. These are offered by so-called vested benefits institutions.
• Insured persons are free to choose the provider for a vested benefits solution. They then instruct their previous pension fund to transfer the assets there.
• Since saved pension assets must in principle remain in the pension cycle, the assets are temporarily parked in a vested benefits account in the absence of a pension fund.
• Since there is thus no interest in real terms on vested benefits accounts, greater attention must be paid to any fees.
• Securities are an alternative. This type of investment is mainly suitable for long-term investments.

In which cases do I need a vested benefits account?

There are various situations in which the saved pension assets cannot be transferred directly to a new pension fund in the event of a career change.

This applies in the following cases, for example,

• new self-employment without follow-up insurance
• Unemployment
• Parental leave
• Divorce (transfer claim to former spouse)
• Income falls below BVG minimum wage
• Emigration or career break
• Change of employer if not all of the vested benefit credit can be transferred to the new benefits provider

The path to a new vested benefit account solution

In any case, decide for yourself which vested benefits foundation offers you the most lucrative opportunities for your retirement assets! If you leave a company, you are responsible for opening a vested benefits account yourself in the cases mentioned as examples above. If you do not react, your pension capital will be held by the “Stiftung Auffangeinrichtung”, the national pension fund, after a certain period of time.

To open a vested benefits account, simply contact the provider of your choice directly. In the meantime, online offers facilitate the setup. To get the best possible overview, it is a good idea to seek advice in advance.

What to do with a new employer and a different pension fund?

Your professional situation has changed again and you are taking up a job that is subject to compulsory insurance again? The pension assets must now flow back into the new pension fund and your vested benefits account is closed.

Vested benefits accounts in comparison

A comparison of interest rates (second pillar, vested benefits accounts) of the largest Swiss banks and financial institutions shows at first glance: They are currently below the BVG minimum interest rate for foundations (1.0 percent for 2017-2022). Unlike pension funds, vested benefits institutions are not bound by this minimum interest rate.

Provider	Rate of interest
BVG Contingency Fund	0.4 %
Bank CLER (ex Coop)	0.4 %
Banque Cantonale Vaudoise	0.3 %
Basler Kantonalbank BKB	0.6 %
Berner Kantonalbank BeKB	0.75 %
Credit Suisse	0.4 %
Luzerner Kantonalbank	0.4 %
Migros Bank	0.4 %
PostFinance (Post)	0.01 %
Raiffeisen	0.8 %
St. Galler KB	0.5 %
UBS	0.4 %
ZKB	0.4 %
Valiant	0.5 %
ABS – Alternative Bank Schweiz	0.00 %

Source: FinanzMonitor

Comparison portals such as FinanzMonitor or comparis enable an up-to-date comparison of the conditions.

For a comparison of yields, the pure comparison of interest rates is not sufficient

Negative interest on savings in vested benefits accounts is not permitted in principle. However, if interest rates tend towards zero, as is currently the case, pension assets still lose value in real terms when fees are taken into account. You should note, for example, that the above-mentioned providers charge fees of between CHF 0 and around CHF 36.

Opening an account is usually free of charge. However, vested benefits institutions often charge a fee for early withdrawals for homeownership. Likewise, fees are not uncommon if the account is closed within one year.

Some banks offer fee reductions if a mortgage is taken out with them.

Vested benefit policies are also affected by low-interest rates

Policies contain insurance benefits and this means a reduction in the return. With a practically non-existent interest rate, the profitability of policies is thus questioned in a similar way as with vested benefits accounts, which are pure savings investments. If insurance cover for disability or death makes sense for you, the alternatives are currently more profitable. And these consist of buying a Pillar 3a or pillar 3b risk insurance policy and investing the pension fund assets in more lucrative investments.

Securities for higher return

If you expect to invest your vested benefit assets for longer than about three years, experience shows that securities promise a higher return. Banks and vested benefits foundations offer securities funds with different weightings of shares and bonds.

Note for the securities solution:

• If you re-enter employment, the securities must be sold and transferred to the new pension fund. If the prices have fallen below the purchase price during the investment, only a reduced vested benefit credit can be transferred. The expected investment period should therefore be a few years.
• Decide on an investment strategy that suits your risk awareness.
• Keyword performance: Compare the performance of different funds over a longer period of time. This way you can see how the fund has performed even in weak years.

How a profit-oriented strategy pays off

The compound interest effect plays a major role in pension planning. After all, we are talking about long terms. With a pure vested benefits account, however, those who get back the amount paid in can currently consider themselves lucky. Adjusted for inflation, it will currently always be accompanied by a real loss. With high-performance funds, on the other hand, an average annual return of five percent can be expected over the last ten years.

The following sample calculations illustrate this:

• Vested benefits account for an interest rate of 0.01 percent per annum and pension assets of CHF 10’000
• Credit balance in one year: CHF 10’001
• Credit balance after five years: CHF 10’005
• Credit balance after ten years: CHF 10’010

alternatively:

• Vested benefits custody account with an assumed performance of 4 percent per annum and an initial credit balance of CHF 10’000
• Credit balance after one year: CHF 10’400
• Credit balance after five years: CHF 12’166
• Credit balance after ten years: CHF 14’802

The capital for old-age provision would double in the second example in about 18 years. In comparison, the interest of 18 francs achieved in the first example would mean a high real loss of purchasing power.

Vested benefits account payout: When is this possible?

On what date can I apply for payment of my vested benefits and what about taxation?

The statutory provisions are authoritative for the payment of vested benefits. Accordingly, payment can be requested at the earliest five years before the AHV retirement age and up to five years thereafter. The earliest date is therefore 59 for women and 60 for men.

Vested benefits are generally paid out as a one-off payment. Pensions are paid from the second pillar exclusively by pension funds. If you are still employed subject to compulsory insurance, you should enquire with your pension fund whether any existing vested benefit credit can be brought in there to increase your pension entitlement.

Payment before ordinary retirement only in defined exceptional situations

The exceptions in which an early payout can be requested are very narrowly defined:

• Leaving Switzerland for good: The compulsory part of the retirement assets can only be paid out when emigrating to an EU/EFTA country if there is no longer any compulsory insurance. Otherwise, account holders can only receive the non-compulsory part.
• Disability: If a full disability pension is drawn from the Federal Disability Insurance, payment of the vested benefits account can also be requested.
• As a cross-border commuter, the permanent cessation of gainful employment in Switzerland: No gainful employment may be pursued in Switzerland and there may be no residence in Switzerland. In this case, the vested benefits can be paid out if the cross-border commuter permit is canceled.
• Purchase of residential property: Within the WEF (homeownership promotion), all or part of the pension assets can be withdrawn from the vested benefits account. A withdrawal is possible at intervals of five years up to five years before reaching the AHV retirement age. Possible uses include the purchase and construction of the owner-occupied residential property and the repayment of mortgage loans. The money can also be used for renovation or participation in housing cooperatives. Shares in a tenant public limited company can also be acquired.
• Death: If the holder of a vested benefits account dies, the assets go to the legal beneficiaries. The legal regulation applies, according to which the first beneficiary is the spouse. This is followed by minor children and children up to the age of 25, provided they are still in education. Subsequently, persons are taken into account who have lived with the account holder for at least five years prior to the account holder’s death. In addition, these persons must have been substantially supported by the account holder. Finally, children of full age and other legal heirs are considered.

Optimize taxes through distributed payout of pension assets

All assets from the second pillar as well as from pillar 3a are taxed once with the payout. However, a reduced tax rate is applied to this part of the income. The income during the term, on the other hand, remains tax-free.

Because of the tax progression, it is best to spread the payouts of pension fund assets, vested benefits, and Pillar 3a assets over several years. Good to know: Up to two vested benefits accounts are permitted. In this respect, splitting vested benefits credit balances into two accounts can also make sense. At the same time, the insolvency risk is minimized by splitting them between two vested benefits foundations. If you are looking for the greatest possible security, you should therefore split pension assets of over CHF 100’000 (up to CHF 100‘000 privileged treatment) between two vested benefits foundations or invest part of them in value credits.

The tax rates are progressive in most cantons but vary. For example, a withdrawal of a capital sum of 250’000 francs results in tax amounts of between 10’217 and 23’103 francs for a married man aged 65, depending on the canton.

Possible forms of investment are regulated by law

Vested benefits accounts are often offered by banks as well as by some non-bank vested benefits foundations. In addition to the classic accounts, the law also provides for insurance policies that offer coverage in the event of death or disability. However, this insurance cover must be paid for with a premium that is charged to the return.

The persistently low level of interest rates is unlikely to offer any prospects for savings investments in the medium term. It is true that there have been phases of so-called sideways movements recently. Nevertheless, a rapid rise in interest rates is not to be expected due to the high levels of government debt.

Therefore, another form of investment is gaining in importance: the vested benefits custody account. The providers of such custody accounts offer the option of investing in funds. In doing so, they ensure that your pension assets are invested in accordance with the legal provisions. These regulate in particular the proportion of risky investments.

The following maximum amounts apply:

• Real estate pledges: 50 percent
• Equity component: 50 percent
• Investment in real estate: 30 percent
• Investment in foreign currencies (without hedging): 30 percent
• other alternative investments: 15 percent

Investment horizon as a basis for decision-making

In the long run, investing in the stock market has always proven to be a profitable investment. This is at least true if attention is paid to broad diversification. Nevertheless, it is important to consider in each individual case how long the assets in the custody account are likely to remain invested. After all, there are always price slumps on the stock market that have to be weathered. Are your funds likely to remain invested until retirement or will you soon be putting them back into a pension fund? In general, an investment horizon of at least three to five years has proven to be advisable for investments in funds.

Save taxes with a later withdrawal

If you withdraw your vested benefit assets rather late, you can save further taxes in addition to the staggering payout. Both the assets of the occupational benefit scheme and those from pillar 3a (self-provision) are not taxed during the period in which you do not dispose of them. This means that you do not pay any wealth tax and also do not have to pay tax on interest and dividends.

Therefore, please note: Most foundations allow the deferral of withdrawal until age 70 (for men) or until age 69 (for women).

No interest rates in sight – lucrative alternatives

Did you know that individual asset management of your vested benefit assets is possible? The advantages of this form, which is not known to many investors, are low fees, tax optimization, and individual management of your pension assets.

ETF and individual securities possible with individual asset management

Here, the investment is made individually, taking into account the statutory investment guidelines for pension assets. Even individual securities are conceivable from a credit balance of CHF 500’000 with some providers. Below that, investments are made in investment funds and partly in ETFs (Exchange Traded Funds). This means maximum flexibility for you.

Digital and personal: institutional tranches

For institutional tranches, no retrocessions (reimbursements from product providers to asset managers, comparable to commissions) are paid. This reduces the fees for the client.

In this way, innovative new providers enable efficient asset management for a broad audience. With some digital wealth advisors, this includes the investment of pension assets.

Frequently asked questions (FAQ)

What happens to the vested benefits account in the event of death?

In the event of the death of the account holder, the pension assets are paid out to the legal beneficiaries.

Is it possible to open several vested benefits accounts?

Up to two vested benefits accounts can be opened. The two accounts must be held with different foundations. Only one account can be opened with a single provider.

Is a negative interest rate possible?

A negative interest rate is not permitted for pure savings solutions. However, there is no requirement regarding the minimum interest rate, as is the case with pension funds.

Continue reading in our journal:

• Switzerland’s 3-pillar principle
• Background on Private Equity
• Digital asset management

Reading Time: 8 minutes

The flexibility required in the world of work means that the second pillar of pension provision must also be as flexible as possible. Finally, switching to a new employer should not be associated with disadvantages in terms of occupational pension components or be made more difficult.

The Vested Benefits Act from 1995 states in addition the vested benefits between the  BVG-bonds secure. In the case of insured persons, a change in the benefit provider of the occupational pension is-, Survivors’ and disability benefits (BVG) the vested benefits are transfered. Both the ID card and the transmission route are specified. It is therefore worthwhile for every insured person to check in the Inform in advance. If you know your options, you’ll be carefree about your retirement savings, even in the face of change.

The most important at a glance

• Starting from the BVG minimum wages (in 2021: CHF 21’500) there is compulsory insurance with a pension fund. Below this BVG entry threshold, coverage exists only via the first pillar (AHV/IV).
• The acquired entitlements (vested benefits) are paid out as a pension upon retirement. Only in a few exceptions and subject to compliance with strict conditions is early payment possible.
• For the cases of Change of the employer, leaving the company, divorce, and death the so-called vested benefit credits are transferred.
• If the vested benefits cannot be transferred directly to another pension fund, the vested benefits must be parked temporarily at a vested benefits institution. This is the case, for example, if the employee leaves the company without a new employer.

Functioning of vested benefits

The second pillar of the Swiss pension system is a mandatory occupational pension plan. It supplements the basic provision of the first pillar and secures the standard of living. The Federal Law on Occupational Retirement, Survivors, and Disability Pension Plans (BVG) stipulate that insurance benefits are provided by pension funds. In the following video, basic interrelationships of the 3-pillar system in Switzerland are explained:

Pension fund contributions and benefits

• In the first stage, the occupational pension plan consists of a mandatory part in which all employees from the age of 17 are insured in the event of disability as well as death. It is also referred to as pension 2b.
• Retirement benefits are built up from the 24th birthday.
• From the BVG minimum annual wage (Stand 2021: CHF 21’150) employees are liable to pay contributions and insurance. The mandatory part of the income is limited to CHF 85,320.
• At least half of the contributions are paid by the employers. They amount to between 7 and 18 percent of the insured salary, graded according to age. The employer can determine the pension fund where his employees are insured. Likewise, he can determine the framework conditions (for example, employer contribution or savings rate).
• Employers are responsible for the proper payment of contributions.

Since the mandatory part is limited, there is the offer of voluntary private pension provision for the so-called extra-mandatory part of the income. Professionals, whether employed or self-employed, should inquire about possible offers in good time. Important: The state participates by exempting the contributions and the capital paid out from tax.

From pension fund to vested benefits institution

Pension fund assets cannot always be transferred from one pension fund to another in the form of a termination benefit.

This applies, for example, to the following cases:

• Unemployment
• Emigration
• career break
• Self-employment (Without follow-up insurance in a pension fund)
• Baby break
• Change of employer (if the entire vested benefits cannot be transferred to the new pension fund)
• Income below the BVG minimum wage (For example, in the case of part-time work)
• Divorce (Transfer of entitlement to the former spouse)

Since paid-in pension fund assets must, by law, remain in the pension scheme circuit, the vested benefit credit saved must, in such cases, be parked with a catch-up institution.

If pension assets cannot be transferred directly from one pension fund to another, the assets are invested and managed by special vested benefits foundations. This guarantees that pension protection is maintained. These are institutions of banks or insurance companies.

The following points must be observed when investing the vested benefit credit:

1. When leaving a company, employees themselves are responsible for opening a vested benefits account.
2. The insured person is free to choose the provider. A maximum of two vested benefits foundations is permitted. Again, it is not possible to have more than one account with the same foundation.
3. If no vested benefits account is opened after leaving a pension fund, the retirement assets are deposited and invested with the national pension fund “Stiftung Auffangeinrichtung”. The transfer usually takes place automatically after six months.
4. The Vested Benefits Act introduced the concept of a minimum vested benefit. This coverage means that the insured person receives at least the sum from all contributions made by themselves. In addition, there is a supplement of four percent per year of life (maximum 100 percent) from the age of 20. If the employer has paid the contributions in full, one-third of these are deemed to have been paid by the insured person.

Payment of the vested benefit assets

If for the above reasons, there is no direct continued insurance with another pension fund after compulsory BVG insurance, the pension fund of the previous employer transfers the vested benefits to the account with a vested benefits foundation. The employee is free to choose this foundation. In this way, the personal retirement assets are invested temporarily or until retirement.

If a new employment relationship is established in Switzerland after the career break, the vested benefits account balance is transferred to the pension fund of the new employer. The vested benefits account can then be closed again.

The withdrawal of vested benefits is governed by legal regulations. Accordingly, there are the following options:

• Retirement: From five years before the AHV retirement age and up to five years thereafter, payment can be requested. Accordingly, the earliest date is from age 59 for women and age 60 for men.
• When leaving Switzerland for good: Employees who move to an EU/EFTA country can only have the non-compulsory part of their retirement assets paid out. If the account holders are not compulsorily insured in this country, the compulsory part can also be paid out.
• Final cessation of employment in Switzerland as a cross-border commuter: If the cross-border commuter permit is canceled, the vested benefits can be paid out. In this case, no gainful employment may be pursued in Switzerland and there must also be no residence in Switzerland.
• Disability: The receipt of a whole disability pension from the federal disability insurance serves as proof.
• Acquisition of residential property: The Swiss homeownership promotion scheme provides for the withdrawal of all or part of the vested benefit assets to promote homeownership. This is possible per account every five years and up to five years before the AHV retirement age. The possible uses in this context include the purchase of owner-occupied residential property, construction, repayment of mortgage loans, and renovation. The participation in housing cooperatives or shares of a tenant stock corporation is also promoted in this way. The vested benefits foundations keep the necessary disbursement forms on hand and provide information on the specific disbursement conditions.
• Death of the holder of the vested benefits account: In the event of death, the regulation provides that the vested benefits are paid out to the legal beneficiaries. The order is predetermined. The first beneficiaries are the spouses, followed by minor children and children under the age of 25 who are still in education. In the next level, persons are considered who have lived with the account holder in a cohabitation relationship in the last five years before the death. It must be evident that these persons were substantially supported. The sequence ends with children of full age and other legal heirs.

The vested benefits system in practice

Due to the changes in the labor market and the required flexibility, the vested benefits case occurs more frequently today.

Examples:

• temporarily no employment (world trip, unemployment, studies, child care)
• indefinite stay abroad
• Reduction in working hours with below BVG entry threshold.
• New self-employment with the waiver of withdrawal of the vested benefit credit
• Partial transfer of pension assets of the former partner after divorce

When leaving a pension fund, the vested benefits, also called termination benefits, are calculated according to the specifications. If insurance with another pension fund does not follow directly for the above reasons, the retirement assets must be transferred to a vested benefits institution. Until the time of the transfer, the credit balance earns interest at the BVG minimum interest rate (as of 2021: one percent).

The amount of the vested benefit credit depends, among other things, on whether the pension fund is managed on a defined benefit or defined contribution basis.

Defined benefit plan: Here, the pension fund benefits are determined according to the insured salary. What initially looks simple and understandable has the disadvantage, however, that the insurance benefits can fluctuate depending on income trends. This can have far-reaching negative consequences for surviving dependents in individual cases.

Defined contribution plan: In the event of an insured event, benefits under this model are calculated based on the contributions paid by the insured plus interest. They are thus based on the accumulated credit balance. The pension is calculated according to a predefined calculation based on the accumulated pension fund capital. Most pension funds under private law have now opted for this model because it is easier to plan.

The choice of vested benefits account

Bank accounts, policies, or securities deposits are available for the choice of vested benefits institution. In times of historically low-interest rates, the choice of the optimal investment for vested benefits has become enormously important. After all, the aim is to be able to maintain one’s standard of living in old age with this investment.

For vested benefits accounts, the average interest rate is 0.022 percent (as of 08/2021). The fees range between 0 and 36 francs. In the case of vested benefits policies, a barely higher return can currently be expected.

Experience shows that the longer the investment horizon, the more profitable a higher equity allocation is. Therefore, investing with securities on a vested benefits account has become extremely attractive. With securities, the assets are invested in equities, bonds, and other securities. In this way, the pension capital can be used to take advantage of the opportunities offered by the financial markets. Providers usually offer various investment strategies to suit individual risk tolerance.

No vested benefits account required in case of insignificance

To avoid unnecessary administrative work, vested benefits accounts do not have to be set up for minor termination benefits from pension funds. In these cases, the vested benefits can be paid out directly to the insured persons.

If the termination benefit is no more than the sum of the savings contributions for one year, it is negligible within the meaning of this regulation. The pension funds can define further details independently.

Tips and first steps in the case of vested benefits

The following points should be observed to ensure that the vested benefit credit earned is invested in a comprehensible, secure, and profitable manner at all times:

• Contact the pension fund promptly in the event of a change in employment. In the event of a change of employer, inform them of the new pension fund. If you do not change to a new pension fund for the reasons described above, then inform the vested benefits institution of the transfer of the termination benefit.
• Use the free choice of vested benefits foundation! In addition to the interest rates, the fees should also be compared.
• Vested benefit assets can be distributed between two different vested benefits foundations; this is no longer possible at a later date. Distribution increases the flexibility of the investment.
• For a longer-term horizon: Take advantage of investment opportunities on the capital market by investing securities in a vested benefits custody account.
• Retirement planning means securing your standard of living in retirement. Therefore, competent advice always pays off. Before making a decision, the personal options should therefore be discussed with a financial expert.

Read on in our journal:

• Pillar 3a insider tips
• Pillar 3a withdrawal: to consider
• Pillar 3b: Tips & background

Reading Time: 9 minutes

Many investors associate the term private equity with a mysterious investment for multimillionaires and institutional investment professionals. This often raises the question among potential investors: What is private equity?

The interested reader learns from the context and background that private equity is not witchcraft and follows certain logical patterns. It is essential to carefully evaluate a planned investment and acknowledge the opportunities and risks. With this guide, we would like to create a basis so that you can find your way around the Swiss private equity universe.

The most important facts in brief

For your better orientation, we have summarized the contents of the guide on private equity in key points.

• Private equity is capital from private investors
• This capital is invested in companies with the aim of generating long-term profits.
• Behind the capital are investors who invest their assets in companies through holding companies.
• Private equity investments require a lot of skill and experience, the selection of the right investment targets is crucial.

Definition: What is Private Equity?

The term private equity comes from the English language. Literally translated, it is divided into two terms private and equity. It thus describes private equity or off-market equity capital. Private equity companies use the money they collect to invest directly in companies to generate a profit.

In the context of private equity, investments in “start-ups” (young companies) are referred to as “venture capital”, which is naturally exposed to a higher risk.

The difference to other investment opportunities lies in the direct influence of the investor on the operative business of the target company. This includes measures such as:

• Further development of the existing corporate strategy
• Provision of know-how
• Work process optimization
• Expansion into new products and markets

Private equity companies in Switzerland are interested in long-term investment with sustainable corporate success. Achieving short-term speculative profits and a quick return is not the focus. In other investment opportunities, the focus is rather on shareholder returns without a direct influence on the management.

The history of private equity begins immediately after World War II. Through the American Research and Development Corporation (ARDC), the private sector encouraged investments by returning servicemen and women to start-up companies. The first private equity success story was a $70,000 investment in Digital Equipment in 1957, made by ARDC immediately after the company went public.

How does private equity work?

Money is collected from wealthy private investors and pooled to form a fund in the private equity sector. The fund subsequently acquires shares in one or more target companies. Any additional financial resources required are provided by banks or external investors as part of a co-financing arrangement. The investment aims to increase the profitability of the target companies through appropriate measures. After a certain holding period, the investment is sold and liquidated at a profit.

Company investments by private equity funds follow different patterns. The goal is always a significant majority stake to be able to influence the target company. In the first step, a blocking minority is sought in the case of listed companies. This limit is 25.1 percent of the capital stock. This means that no qualified majority resolution can be passed against the new shareholder at the Annual General Meeting.

In the case of the corporate phases in the development of companies, there are further possible uses of private equity. Here a distinction is made between:

• Venture capital in the case of a start-up with a successful business model
• Growth capital when a company expands into new markets or new product lines

In both cases, traditional lending banks are risk-averse and usually only want to provide debt capital after a successful market launch.

The second area of private equity in Switzerland consists of participating in buy-out financings with investments. Here are the best-known forms:

• Leveraged Buy-out (LBO)
• Management-Buy-out (MBO)

Leveraged Buy-out (LBO)

In an LBO, the majority of the purchase price for the target company is debt-financed. The liabilities incurred are charged to the target company. The loans are repaid from the cash flow of the acquired company.

Management-Buy-out (MBO)

In an MBO, the initiator is the management of the company itself. This can be triggered, for example, by a restructuring that is not carried out by the previous shareholders. The capital for financing is provided by the management itself and mostly by private equity firms.

Classification, delimitation, and comparison with other forms of finance

The main objective of private equity is to make equity investments in companies that are not listed on the stock exchange. In connection with private equity, there are two main directions for the targeted investments, as already mentioned in the last chapter:

• Buy-out
• Venture Capital (VC)

In terms of financial instruments, private equity aims to invest equity to gain direct access to the targeted company. A minority shareholding is only very rarely sought.

In terms of investment approach, private equity in Switzerland differs significantly from an investment in shares of companies. When private investors invest money in this asset class, the focus is primarily on achieving the highest possible return. The investor is not interested in making strategic decisions or gaining influence on the management. Whether investment in private equity is ultimately better than a direct investment in shares depends heavily on the timing and holding period of the investment.

Venture capital is mostly used in connection with start-ups with high growth potential. Private equity provides the basis for equity capital here. Because growth financing for young companies is often associated with high risks, the use of debt capital by banks is rare. As an equivalent for the high-risk appetite of private equity funds, a high return on equity is expected during the investment process.

Opportunities & Risks of Private Equity

An investment in private equity is certainly not a basic investment for capital investors. It requires a lot of experience in dealing with financial investments and at the same time a high starting capital for the entry. In connection with the investment in private equity, the investor takes a high financial risk. In exceptional cases, this can also lead to a total loss of the invested funds, because the investor is fully liable. You should keep these risks in mind before making an investment decision:

• Liquidity risks during the term of the investment
• Valuation risks relating to the acquired companies
• Cost risks due to high management fees and distribution costs
• Total loss of the paid-in funds due to insolvency of the target companies cannot be ruled out
• Transparency risks due to lack insight into the transactions carried out
• Lack of own initiative during the investment period, because dependent on the decisions of the investors

Investments in private equity and shares are considered long-term investments intangible assets. Whereas with equity investment you have the option to sell your shares on any trading day, this is not possible with private equity. The private equity fund is an institutional investor that has invested its assets for you on a long-term illiquid basis in unlisted companies. This creates an additional risk for the investor* that he/she cannot freely liquidate his/her investment in the short term.

The opportunities offered by private equity in Switzerland lie in the fact that investments are only made in selected companies with high expected returns. Investment professionals look for young companies with forward-looking business ideas. The second criterion is an undervalued company that can generate high profits in the future. In both of these cases, investors can expect high returns.

At the end of the investment horizon, an investment of the private equity fund is sold or placed on the stock exchange. Similar to an investment in real estate, the resulting increase in value is added to the investment capital. After realization of the sales proceeds, which are not necessarily generated sustainably, repayment is made to the investor.

Private equity: Only for the super-rich?

Investing in private equity is suitable for qualified private investors with expertise in the field of corporate investments. Before making an investment decision, the investor must aim for a long-term investment horizon. The second factor is that the investor considers the entrepreneurial liability risk. In addition, you should not be dependent on the invested capital during the term of the investment.

The financing amount for an investment in private equity in Switzerland is at least 250,000 Swiss francs or even a multiple thereof. For this reason, private equity is primarily suitable for:

• High-net-worth private clients
• Institutional investors
• Family Offices

You can gain access to the private equity market by contacting an institutional provider that sells such funds. When selecting a fund, it is important to carefully examine the fund’s investment focus in terms of sectors and strategy in advance.

For the normal private investor, this does not mean that he/she is completely excluded from investing in private equity. It is possible to invest money in this area via closed-end private equity retail funds or corresponding public funds. However, even in this environment, the customary minimum investment amounts are often more than 10.000 Swiss francs.

These funds are usually funds of funds, which subsequently invest the collected customer money in other private equity funds. However, before potentially investing money in these vehicles, you should consider:

• The dual fund structure creates an even greater lack of transparency of the invested funds
• Double costs, as the fund of funds, also charges its fees and management costs

How do private equity firms differ?

In their investment decisions, private equity funds set strict criteria according to which they invest the money they collect. A distinction is made between:

• Company phase
• Branch
• Financing amount
• Region

This ensures that the invested assets of a fund have homogeneous objectives.

Company phase

Funds that focus on the allocation of venture capital (venture capital) support a young company in a difficult phase. Here, the risks of total failure are greatest until the company with a promising business model has reached market maturity.

Companies wishing to spin off or expand a business unit look to private equity in Switzerland for growth capital. This can also be done in the course of an international expansion into new markets.

In the case of an MBO (management buy-out), private equity supports the management’s new strategy for a turnaround or business transformation.

Branch

When it comes to sectors, private equity funds specifically select segments with future growth. These are, for example, new trends based on innovative technology or topics that are promising for the future. These include, for example, investments in sustainable technology or products with added ecological value.

Funding Level

When it comes to the amount of financing, private equity focuses on the funds required for the planned investment and on the size of the target company. The volume of funds required often also influences the minimum investment amount.

Region

With a view to the region, private equity is focusing on future growth markets. These do not necessarily have to be in Switzerland or Europe. In the Asian region, in particular, economic growth is unabated in many countries.

Reading tip: Private debt: Alternative corporate financing and exciting asset class

Private Equity – Tips for the first investment

Before you, as an investor, consider investing in private equity funds for the first time, you should take your time to draw up a checklist. These questions, for example, are certainly helpful:

• Can you do without the invested money for a longer period of at least 10 years?
• Are you willing to take a risk that, in the worst case, could even mean a total loss?
• Can you correctly assess the risks of the planned investment?
• Have you chosen the right investment company?
• Is the private equity fund’s plan transparent and comprehensible to you?
• Are you aware of all the fees and costs incurred for the investment?
• Were you fully informed about all the questions you asked in discussions with the fund distributor?
• Are you willing to forego distributions during the term of the investment and only receive your capital with accumulated growth at the end of the investment?
• Are you prepared to take on additional risks (transparency and exchange rate risks) for a possible fund investment abroad?

It is crucial for your financial investment that you answer all of these questions with a clear YES. In addition, other questions may arise that are related to your situation. If the slightest doubt arises when assessing your investment, it is a good idea to consult an expert advisor. Under no circumstances should you ignore possible risks, because, in the end, you bear the sole responsibility for the investment.

A vivid example to imagine the total loss of financial investment is the comparison with the purchase of a luxury car. Imagine you buy a luxury car for at least 100,000 Swiss francs and drive the car head-on into the wall with a total loss on the first drive. If you are willing to take this pain, then nothing stands in the way of investing in private equity funds.

Conclusion on private equity

Private equity means off-market equity capital in connection with investments in companies. In this environment, a private equity fund collects investment money from investors. The most common investor groups in the private equity sector include high net worth individuals, family offices, and institutional investors. For small investors, an alternative is to invest in closed-end private equity retail funds. It is important to note that investing in private equity involves a high level of risk.

In the case of private equity funds, a rough distinction is made between venture capital funds and buy-out funds. Venture capital is mostly used to invest in young companies with a promising business model. Buy-out funds focus on expansion strategies for mature companies or transactions triggered by the management of the previous company. Both projects are supported with capital from private equity funds. In addition, banks and institutional investors can act as co-financiers in buy-out transactions.

Investors should define their approach precisely in advance of the investment. It is crucial to know all possible opportunities and risks with the planned investment employing a checklist. With the distribution of a fund of private equity in Switzerland all facts of the investment are to be discussed in the context of the first discussions. Once the right fund and the right investment objective have been found, you can invest. It is always a good idea to seek the advice of an experienced professional before signing the contracts if any doubts arise.

Read on in our journal:

• All about the Swiss vested benefit act
• More about Private Banking
• 3-pillar principle for pension provision
• Types of asset management mandates

Reading Time: 10 minutes

The basis for material security in Switzerland is the 3-pillar principle. It is the pension system guaranteed by the Federal Constitution and has proven itself over several decades. The aim is to provide Swiss citizens with financial security in old age and in the event of disability. In addition, dependents should be covered in the event of death.

Demographic developments and persistently low-interest rates also pose major challenges for Switzerland. Nevertheless, spreading the responsibility over several pillars makes pension provision more stable. This makes it all the more important for each individual to know the instruments, the specialists involved, and their areas of expertise. This article is intended to serve this purpose and provide an overview of the individual possibilities.

The most important facts in brief

• Switzerland’s pension system consists of three pillars: state, occupational and private pension plans.
• The first pillar serves to secure subsistence and is the responsibility of the state.
• The second pillar comprises occupational benefits and is the responsibility of employers.
• With the third pillar, personal responsibility is called for. With this, a private pension can be built up with state support.
• The opportunities that arise with the offers within the third pillar are interesting for several reasons. On the one hand, tax advantages already present themselves during active working life. On the other hand, this is about the possibility of avoiding unpleasant income gaps. The goal is to maintain the lifestyle in old age to which you have become accustomed.
• Spending on your private pension plan will be easier the sooner you start.

The story: A social insurance system is created by referendum

The Health and Accident Insurance Act (KUVG) came into being as early as January 1, 1912. Four decades later, the Old-Age and Survivors Insurance (OASI) was created on January 1, 1948. The two world wars were major triggers for this insurance. Many soldiers and their families were in dire straits because they were no longer able to work due to wounds. Families also experienced economic hardship due to the death of their main breadwinner.

It took many parliamentary initiatives before a nationwide solution was found. In 1960, the insurance was supplemented by disability insurance.

Many years later, the 3-pillar principle was enshrined in the Federal Constitution. On December 3, 1972, the Swiss voted in favor of the model with a 74 percent majority. For the first time in the history of Switzerland, a clear system was created that offered the population protection against the risks of disability, old age, and death of the main provider.

Before social insurance became part of public law in Art. 111 ff. of the Swiss Federal Constitution (BV), there were various institutions for this purpose. They were associations of persons as well as institutions to which people in distress could turn. These included, for example, welfare for the poor, mutual aid societies, and private insurance companies.

Structure and operation of the 3-pillar principle

The system is one of the fundamental values of Switzerland. It guarantees social security on a collective level and enables people to live a life of self-determination in old age. This objective is a major challenge in its implementation. Finally, all pension systems are subject to demographic change and have to face a changing society.

In Switzerland, this means in particular:

• Every generation so far has enjoyed a seven-year increase in life expectancy.
• 46 percent of Swiss citizens say they want to build up a nest egg for their old age.
• The challenge of the pension gap: This affects one in three Swiss citizens.

Despite the need for adjustments, Switzerland still has an excellent starting position. The basis for this is the 3-pillar principle, in which each pillar fulfills its specific purpose and has its scope of benefits. The interaction stands for classic Swiss values: solidarity as well as personal responsibility.

The first pillar includes only mandatory benefits. Likewise, some of the second pillar insurances are standard. Another part of the second pillar covers is voluntary options. The third pillar is based on completely voluntary benefits with its private insurances.

Pillar 1: Securing your livelihood – the state pension plan

The first pillar is based on the principle of solidarity. Employees (including cross-border commuters) and employers pay monthly contributions, which finance the payments to current pensioners. The age for the OASI pension, the retirement age, is currently 65 for men and 64 for women. The pension is granted upon application. If you want to know how much pension you can expect, you can apply to the cantonal compensation office for an advance calculation.

As of January 1, 2021, the maximum OASI pension is CHF 2,390 per month, and you can expect a minimum of CHF 1,195. These pensions require the full contribution period.

With this pillar, Switzerland fulfills its duty as a welfare state. In old age and the event of disability, the beneficiary’s livelihood is secured. However, you cannot expect more from the first pillar.

Features 1st pillar

The main features of the first pillar are:

1. mandatory pension plan
2. performances:

• Old-age and survivors’ insurance (OASI)
• Disability insurance (DI)
• The supplementary benefits (EL) for OASI and DI
• Unemployment insurance (ALV)
• Maternity allowance (MSE)
• EO (according to the income replacement regulation, benefits during military service, civil defense, or civilian service)

3. Objective: Securing livelihood
4. Financing: pay-as-you-go system (paid in by employed persons to payout approved pensions)

Features of the OASI

The OASI is national insurance. It covers all persons who live or work in Switzerland. This means that the insurance also covers cross-border commuters, guest workers, and people who are not gainfully employed (students, invalids, pensioners, housewives).

The OASI contributions are paid by all insured persons. Only children are exempt from this. Married persons who do not receive any income from gainful employment are also required to pay contributions. However, a limit applies to this contribution, which corresponds to twice the minimum contribution of the gainfully employed spouse.

Employee contributions are paid by the employer. The amount is based on income following the assessment for direct federal tax. Self-employed persons settle directly with the compensation office.

Reading tip: Financial Advice for women

Pillar 2: Occupational pension provision – a building block for securing the standard of living

All employees are insured against disability from the age of 17. In addition, the family is financially protected in the event of death. The benefits are extended from the 24th birthday to include retirement benefits upon retirement.

The occupational pension plan can cover around 20 percent of all areas. Together with the benefits from the first pillar, this means that around 60 to 70 percent of the last income is covered.

Features 2nd pillar

The main features of the second pillar are:

1. Mandatory occupational pension plan
2. Services:

• BVG (Federal Law on Occupational Retirement, Survivors and Disability Pension Plans, mandatory, represented by pension funds)
• UVG (Federal Law on Accident Insurance, compulsory)
• FZG (vested benefits on leaving or changing a pension fund)
• Non-mandatory insurance for the BVG as well as for the UVG

3. Objective: Maintaining the standard of living in old age and providing coverage in the event of disability and for dependents in the event of death (in combination with the first pillar).
4. Funding: funded (savings)

Features of the occupational pension plan (BVG)

The second pillar is divided into two parts: the mandatory and the extra-mandatory part. In the mandatory part, the annual income that is insured is limited. The extra-mandatory part is the part above this

In the mandatory area, the pension plan covers the Protection in old age (BVG pension) as well as services for Disability and survivors’ insurance. It also includes daily sickness benefits insurance (continued payment of wages in the event of illness) and vested benefits (assumption of claims in the event of a change of benefits provider). The second pillar is supplemented by accident insurance (UVG), which covers employees against the risks of occupational and non-occupational accidents and work-related illnesses.

As soon as the annual salary subject to OASI exceeds the BVG minimum annual salary, employees are required to pay BVG contributions and insurance. The employers are responsible for the correct insurance in the BVG. As with the OASI contributions, they pay at least half of the contributions. Self-employed persons pay into the BVG voluntarily. The capital is managed by public and private pension funds.

The obligation to insure is thus limited to income in the mandatory area. It is therefore important to identify possible pension gaps here. You should therefore take advantage of the option of voluntary private provision of so-called pension 2b for the non-compulsory area. Important: The state indirectly participates in the financing of this essential pillar in that the contributions and the saved capital are tax-free.

Pillar 3: Private pension provision – secures the accustomed lifestyle in old age

The benefits from the mandatory areas of the first and second pillars can cover around 60 percent of income. However, this applies at most up to an income of up to CHF 86,040 (as of 2021). In combination with the extra-mandatory insurances, about 70 percent can be reached. You should also bear in mind that demographic trends mean that in the future, far fewer working people in Switzerland will have to pay the benefits of more and more pensioners.

The trend clearly shows that private third-pillar pension provision has gained in importance and is becoming increasingly important for the future.

Features 3rd pillar

The main features of the third pillar are:

1. voluntary private provision
2. benefits: In 1972, the Federal Constitution established the following ways within the third pillar to build up the additional assets needed for old age:

• Pillar 3a (A tied pension plan, tax-deductible with restrictions; in certain cases, such as the purchase of a home or the start of a self-employed business, the capital can be withdrawn early)
• Pillar 3b (free pension provision, fewer restrictions, no direct tax benefits, financial risks due to disability or death can be covered more in line with needs)

Features of private pension provision

You can tailor your voluntary private pension provision to your individual needs by choosing from a wide range of financial products. As can be seen above, the third pillar is divided into a tied pension plan (3a), which is available to all employed persons and persons subject to OASI contributions in Switzerland, and a free pension plan (3b).

1. Pillar 3a (tied pension plan)

• As the name suggests, the capital saved in pillar 3a products is tied up and can only be withdrawn early in a few defined exceptional cases.
• The contributions are tax-deductible within annually defined limits. In 2021, these amount to CHF 6,883 for employed persons with a pension fund and up to 20 percent of earned income for employed persons without a pension fund, up to a maximum of CHF 34,416.
• Tax incentives also include the fact that the income is tax-free during the term and the capital saved for pension purposes is not subject to wealth tax. In addition, the early payout of the capital is taxed at a reduced special rate.
• Payment can be made no earlier than five years before reaching OASI retirement age.
• If employment is continued beyond the regular retirement date, receipt can be postponed by up to five years.
• Pillar 3a pension provision is often represented by classic products such as pension accounts and pension custody accounts.
• Paid pensions are fully taxed by the federal government as well as the cantons.

2. Pillar 3b (untied pension plan)

• The free pension plan 3b is not subject to any state requirements such as payments, availability, or payout dates. This means that the pension gap can be closed completely and individually.
• The pension plan can be geared to achieving personal savings goals and wishes at self-determined dates, for example. There are no government restrictions on deposits, withdrawals, or payout dates. The relevant contractual provisions of the financial product are exclusively authoritative.
• The unrestricted pension plan can be used by all persons living in Switzerland.
• Contributions to unrestricted pension plans can only be deducted as part of the limited deductible contributions of the lump-sum tax deduction. This also includes premiums for health and accident insurance, which often means that the maximum amount has already been exhausted.
• If the statutory regulations are complied with, no taxes are payable on the lump-sum payment of periodically financed endowment life insurance policies. For this purpose, the contract must have been in force for at least five years and must have been concluded before the age of 66. In addition, the capital may not be paid out until after age 60.
• Compared to pensions from pillar 3a, which are fully taxable, pensions from the free pension plan 3b are only taxed at 40 percent.

Unrestricted pension provision 3b: Individuality through a variety of financial products

The ratio of pay-as-you-go to funded pension provision will continue to shift due to demographic developments, rising wages, and higher life expectancy. For the 3-pillar principle, this means that private provision in the third pillar will gain in importance. Matching retirement provision precisely to personal needs is only possible in pillar 3b.

Besides banks, fintech offers a wide variety of products. You can choose freely from a wide range of solutions. The low level of interest rates has meant that even inflation can no longer be compensated for with classic interest investments. Other investments that have an acceptable level of risk are in demand.

The most important forms of investment in the area of unrestricted pension provision are:

• Savings account
• Stocks
• Bonds
• Funds
• Commodity funds (e.g. gold)

Identify gaps in pension provision in good time and adapt pension provision forms

Everyone’s requirements are individual. What is certain, however, is that once a standard of living has been achieved, people are reluctant to give it up. You should bear this in mind when planning your retirement provision. Provisions under the first two pillars, provided the options are fully utilized, secure a maximum of around 70 percent of income. Experience shows that people feel comfortable with around 80 percent of net earned income in old age and can maintain their lifestyle habits. So take a look at your current entitlements from the first two pillars and use this data to plan your pension!

In addition, make sure to adapt your pension plan to personal changes. These are, for example:

• Start of self-employed activity
• Divorce
• Family (children)
• Homeownership formation
• Early retirement

The provider market has responded to the challenges. So you can call on professional help for your retirement planning. Digitization has made “family office-level” wealth planning accessible to broad sections of the population.

The strengths of the Swiss pension system in an international comparison

The quality of pension systems is often measured by HelpAge International’s Global AgeWatch Index. This index ranks countries in terms of their aging population and their well-being. Countries’ performance is to be identified and potential for optimization is to be surveyed. Of 91 countries surveyed worldwide, Switzerland has ranked among the top ten for many years. Interestingly, Sweden, a country comparable to Switzerland’s 3-pillar principle, is at number one.

The Swiss model has proven itself over many years. The fundamental advantage compared to other systems is that the three pillars complement each other optimally:

• The OASI offers a comparatively high level of benefits and is based on a strong community spirit.
• Second-pillar occupational pension provision has the advantage that the BVG is financed using the funded method and is thus less affected by demographic developments.
• With private pension provision in the third pillar, tax advantages can be generated during working life. The goal of securing the current standard of living for the future is more important than ever for all Swiss people. This can be tailored to the personal situation, especially with pillar 3b.

Another feature of the Swiss welfare state is that supplementary benefits are paid to people who cannot build up savings or whose income is below the subsistence level.

One advantage of the 3-pillar principle is the existence of both a pay-as-you-go system and a funded system. This increases the solidarity for the formation of necessary capital. The known risks, resulting from population development and inflation, are distributed among several pillars by the system. The state is at the center of responsibility. At the same time, companies are obligated and citizens are motivated to provide for themselves.

Reading Time: 4 minutes

In this article we would like to shed light on the scientific background of our investment strategy in order to make one of the most important distinguishing features of Everon more tangible. To do this, we first go into the discoveries of individual factors, in order to then show the concrete possibility of applying these factors in a portfolio. This is mainly done in relation to equities, but some factors can also be applied to other asset classes.

In the last century, many scientists have dealt with the question of which factors determine stock returns. One of the first and best-known models that attempts to explain this is the Capital Asset Pricing Model (CAPM), which was developed by Sharpe (1964), Lintner (1965) and Mossin (1966). They argue that the expected excess return of a stock is determined only by its (systemic) market risk. To this day, the model is popular for its simplicity in determining the cost of equity. However, empirical evidence shows that the model is too simple to explain expected stock returns (Fama and French (2004)). Later, researchers came up with additional explanations of what factors influence stock returns.

Ross (1976) proposes the “Arbitrage Pricing Model“, which states that the expected returns on financial assets are a function of several factors and the associated risk premia. However, he does not identify these factors in an economic sense. Seminal work in this area was published by Fama and French (1992,1993), where they proposed their famous three-factor model. It should be noted that they combined factors previously discovered by other researchers such as Basu (1977), Banz (1981), Sharpe (1964), Lintner (1965) and Mossin (1966). However, this does not diminish the importance of their empirical work, but it is still important to note. According to their model, stock returns are determined by three factors: “Market“, “Size“, and “Value“. Stocks with a high market correlation, a small market capitalisation (market cap) and a high book-to-market value ratio (B/M ratio) are likely to have higher excess returns. This model was then extended by Carhart (1997) to include a Momentum factor. Momentum looks at the return of a stock over the recent past, and different observation periods can be used here.

The models, such as those of Fama and French (1993, 2015), are called multi-factor models and can be divided into three categories: macroeconomic factors (e.g. inflation or interest rate surprises), statistical factors (e.g. principal component analysis) and fundamental factors that deal with a company’s fundamentals (e.g. price/book value). Everon’s investment strategy focuses on fundamental factors, which nowadays mainly include Value, Size, Momentum, Volatility, Dividend Yield and Quality. These factors have a solid research base, and there is a reasonable economic explanation for why they have historically delivered risk premia (Bender et al. (2013)).

The typical approach to factor models is to create portfolios that are sorted by the factors of interest. However, there are different approaches to how this sorting can be done. The classic methods are characterised by the fact that factor models construct each factor individually rather than scoring a stock on all factors simultaneously. This can lead to conflicting signals between the factors. For example, one would buy a stock based on Momentum but perhaps not on Quality.

At Everon, we rely on the best-known and most-researched factors such as Value, Momentum, Quality, Dividend Yield, etc. To avoid the problems mentioned above in portfolio construction, we analyse each stock simultaneously according to each factor. In this way, only those shares are included in the portfolio that can be classified as positive across all the factors considered. Furthermore, there is scientific evidence that the combination of factors in a portfolio is specifically advantageous over individual investments in each factor (S&P Dow Jones Indices (2018)).

Implementing a good multi-factor strategy on a single stock basis is costly and can therefore be expensive for private investors. We can efficiently implement this specific and sophisticated investment style through our automated and systematic investment processes.

References

W. F. Sharpe. Capital asset prices: A theory of market equilibrium under conditions of risk. The journal of finance, 19(3):425–442, 1964.

J. Lintner. Security prices, risk, and maximal gains from diversification. The journal of finance, 20(4):587–615, 1965.

J. Mossin. Equilibrium in a capital asset market. Econometrica: Journal of the econometric society, pages 768–783, 1966.

E. F. Fama and K. R. French. The capital asset pricing model: Theory and evidence. Journal of economic perspectives, 18(3):25–46, 2004.

S. Ross. The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3): 341–360, 1976.

E. F. Fama and K. R. French. The cross-section of expected stock returns. the Journal of Finance, 47(2):427–465, 1992.

E. F. Fama and K. R. French. Common risk factors in the returns on stocks and bonds. Journal of financial economics, 33(1):3–56, 1993.

S. Basu. Investment performance of common stocks in relation to their price-earnings ratios: A test of the efficient market hypothesis. The journal of Finance, 32(3):663–682, 1977.

R. W. Banz. The relationship between return and market value of common stocks. Journal of financial economics, 9(1):3–18, 1981.

M. M. Carhart. On persistence in mutual fund performance. The Journal of finance, 52(1): 57–82, 1997.

E. F. Fama and K. R. French. A five-factor asset pricing model. Journal of financial economics, 116(1):1–22, 2015.

J. Bender and F. Nielsen. Earnings quality revisited. The Journal of Portfolio Management, 39(4):69–79, 2013.

S&P Dow Jones Indices. The Merits and Methods of Multi-Factor Investing. Online, Apr. 2022. URL https://www.stoxx.com/document/Indices/Common/Indexguide/stoxx_ index_guide.pdf.

Read on in our journal:

• Family Office: definition, benefits & tips
• Pillar 3a insider tips
• Vested benefits account – what to look out for?

Reading Time: 3 minutes

Everon basically stands for the active investment approach, but we have our own definition of it. We understand “active” as a systematic, unemotional and quantitative way of analysing investment instruments. We do not try to “time” the market, as short-term market developments are usually difficult to predict and are often based on speculation. For this reason, we trade in predefined time intervals, which can be shorter or longer depending on the market phase and market fluctuations.

We evaluate a global universe of investment instruments (e.g. equities) according to specific criteria, such as the risk or quality of a security. The analysis also considers various “factors” whose existence is recognised in science. Combining these criteria and factors enables us to actively adjust our strategies to generate optimal risk-adjusted returns over the long term. This means optimising the return in relation to the risk taken. The investment style is called “multi-factor investing”.

Reading tip: AMCs – actively managed certificates

REASONS FOR THE ACTIVE EVERON APPROACH

Any customer wishes can be taken into account.

This includes both the explicit inclusion and the explicit exclusion of specific companies/titles.

With our investment approach, we pursue a so-called “multi-factor strategy”.

More than 50 years ago, scientists proved that certain factors in the market allow investors to earn an additional risk premium above the market return if they are exposed to these factors through their investment. An example is the «Size» factor, which states that small companies generate an excess return over large companies.

Other well known and academically accepted factors are «Quality», «Momentum», and «Value» (see chart above). Therefore, some providers offer a product (usually an exchange-traded fund, so-called ETF) of this factor by mapping a particular index. However, it has been found that the combination of different factors in a portfolio is much better performing than investing in single factors or investing in the whole market itself. This is the basis of Everon’s investment philosophy.

We have the opportunity to focus on different factors in different market phases.

Active investing offers individual solutions for each investor. It has been shown that certain factors are particularly suitable in certain market phases. This allows us to manage the portfolio, especially in more turbulent times actively. In this way, risk-return ratios can be created that are impossible with a passive investment (e.g. the entire Swiss market).

Through direct investment, the client is a shareholder in the company.

If one holds genuine company shares, dividends are paid out directly, and all shareholder rights and obligations are open, such as voting rights. This also makes it possible to influence the company actively. Our offer is aimed at clients who care about what is in their investment portfolio. The portfolio is fully transparent at all times. This is not the case with many passive investment instruments: By mapping an entire market, you also invest in areas or companies that may not be desirable. Due to our direct and active approach, we can consistently implement any type of investment according to your wishes. We are neither bound to certain products nor predefined compositions of indices. This enables us to incorporate the latest scientific findings into our strategies in the future as well.

The advantage over implementing an active approach ourselves: Our expertise in assessing individual investment instruments and avoiding so-called “behavioural biases”.

“Behavioural biases are features of human psychology that lead individuals to make sub-optimal investment decisions. The best example is the so-called “herding”, also comparable to the recently prominent “Fear of Missing Out (FOMO)”. It’s about the tendency of people to invest in stocks that have already performed very well. Individuals tend to do what others are doing (so-called “herding” or herd instinct) or get the feeling that they are missing out on a unique opportunity (“FOMO”).

Reading tip: The Advantages of AMCs for Investors

Active investing helps to fulfil various functions of the financial markets.

Active investing contributes to the efficiency of financial markets. Market efficiency means that the market price reflects the actual value correctly or that all information available to market participants is correctly valued. Inefficient markets, capital flows to “good” companies, while “bad” companies receive no capital and thus disappear from the market sooner or later. Furthermore, fair pricing emerges as active investors with different views operate in the markets. It provides liquidity for buyers and sellers. On the other hand, passive investors allocate capital quasi “blindly”, as they only buy and sell securities in connection with the mapping of the index and thus do not carry out any quality check.

Read on in our journal:

• Background on long-term investments
• Digital wealth management tips and tricks
• Private financial planning guide and template

Reading Time: 2 minutesDid you know that we are the first fintech in Switzerland with 35 years of financial advisory experience? This is possible thanks to the cooperation with the multi-family office “Swiss 5 Group”. This gives Everon clients the best of both worlds: private banking including digital asset management via the app and customized investment strategies that are otherwise reserved for professional and institutional investors.

Until today, there was little overlap between utilizing a wealth management application and receiving guidance from a family office. While apps rely on automation and standard processes to keep costs as low as possible, the family office focuses on personal and tailored advice. Accordingly, the services and investment strategies of a family office have so far only been available to a very small and exclusive group of clients.

Democratization of private banking

We are now bringing these two approaches together for the first time as we democratize private banking by combining the best of both worlds. At Everon innovation meets tradition. Our customers can manage their assets completely independently and at attractive conditions via the app. At the same time, they have access to the tried-and-tested investment strategies that we have developed together with the Multi Family Office have developed.” Further services, which in our view still include personal consulting, can also be used if required.

This service is usually only available to family office customers.

Fintech with 35 years of investment experience

Our investment philosophy has existed and proven itself for 35 years and is continuously developed.  The strategic and tactical asset allocation is defined regularly and jointly. We also coordinate with the family office on the individual strategies within the respective asset classes. In addition to traditional asset classes such as bonds, equities, real estate, and commodities, Everon clients can also invest in private markets. 

We can also respond quickly and unbureaucratic to individual customer needs in all other asset classes: Thanks to our «Portfolio Management Engine» we are very flexible. This self-developed software generates, based on the wishes and requirements of the client and the parameters of the investment committee, individualized proposals for individual investments and entire portfolio structures.

The only fintech represented in the wealth management ranking: award-winning strategies for a target group that will no longer receive the advice it deserves from banks in the future

The fact that the jointly developed investment strategy works are shown by the asset management ranking published by Bilanz and firstfive In 2020, we made it into the top 5, and in 2021 we even made it to 1st place.