What does the law say?
Only collective investment schemes that have been approved by the Swiss Financial Market Supervisory Authority (Finma) are permitted in the vested benefits scheme (Art. 19a FZV). As of today, no approved funds/ETFs can be found on Finma’s list. Thus, investing in crypto currencies with vested benefits is not yet possible.
Things look better for pillar 3a. The investment rules for 3a retirement savings foundations are less stiff than for vested benefits foundations. Therefore, it is possible in principle to offer crypto currencies as part of alternative investments.
What are the product types?
Exchange traded products, or ETPs, can be divided into three subcategories.
- ETFs (Exchange Traded Funds): ETFs track an index, a sector or a theme. They offer simple and broadly diversified access to a market. In addition, as special assets, they are protected against the insolvency of the investment company.
- ETNs (Exchange Traded Notes): ETNs give you the opportunity to invest in currencies. ETNs are debt securities. The assets invested in ETNs are therefore not protected against the insolvency of the issuer. In other words, as an investor you have a counterparty risk.
- ETCs (Exchange Traded Commodities): With ETCs, you can invest in individual commodities/precious metals. Like ETNs, ETCs also involve a counterparty risk.
Since we focus on a transparent solution at finpension, the crypto fund should have no counterparty risk if possible. Therefore, only ETFs are shortlisted.
What crypto ETFs are available on the market?
Just recently, Canada approved its first two crypto currency ETFs:
- CI Galaxy Bitcoin
- CI Galaxy Ethereum
In 2019, fund providers such as VanEck also applied for approval in the U.S., which was denied. Late last year, VanEck reapplied for approval of a bitcoin ETF. In the market, it is hoped that the first approvals in Canada will force the hand of the U.S. Securities and Exchange Commission (SEC).
What do crypto funds cost?
Since the market does not yet offer so many products and the big players are still missing, the prices are correspondingly high. The lowest management fee was 0.95 % per year. Some providers add entry fees (e.g. 1.271 % at Vontobel), distribution fees (e.g. 1 % at Sebax), performance fees (e.g. 20 % at Systematic DLT Funds) and/or a subscription/redemption fee (e.g. 1.5 % at Systematic DLT Funds). Depending on the product, this results in a total expense ratio of more than 4 % per year (e.g. the Systematic DLT Funds has a total expense ratio of 3.58 % excluding performance fee).
What do we do at finpension?
We are very interested in this topic and are actively monitoring it. Currently, however, we have made a conscious decision not to offer crypto currencies to our customers. There are three reasons for this:
- High costs: currently we have a flat fee of 0.39% in our 3a retirement solution. A TER of about 4 % would increase this significantly and does not fit into our investment philosophy.
- Contrary to our basic principle (simple and transparent): since certain products have counterparty risk or are not fully invested in crypto currencies, this entails a lot of explanation. This contradicts our basic principle of simplicity.
- Denomination challenge: With the funds we currently use, you have the option to trade 0.001 units. With ETNs and certificates, you usually have to buy whole units. This means that an investor has to invest a certain amount (usually about CHF 1,000). Furthermore, he loses flexibility in rebalancing and adjusting the strategy.
Even though we have decided against it at the moment, we can imagine offering crypto currencies as an alternative investment in the future. This is especially as an alternative to gold. Gold is admittedly not a component of the standard strategies. However, gold can already be used in an individual strategy today. This is despite the fact that, from a tax perspective, an income-oriented strategy is generally to be preferred in pension provisions.
Update 03.12.2021 – Game Changer
In September 2021, the Swiss Financial Market Supervisory Authority FINMA approved the first crypto fund. Although we decided against including the Swiss Crypto Fund in our main strategies, we want to make it available for the Individual Strategies. We are an innovative, digital company and want to live up to our pioneering role here as well. The crypto fund is primarily intended to serve as a second alternative investment alongside gold and is limited to a maximum of 5%. Gold is also not a component of our main strategies, since from a tax perspective, an income-oriented strategy is to be preferred in pension provision.