Effective 1 July 2025, the Asset Management Association Switzerland (AMAS) issued Circular 04/2025 governing the creation and administration of so-called “Side Pockets” under Art. 110a CISO. This framework allows fund management companies and managers of collective assets to segregate illiquid or hard-to-value assets from the remaining portfolio and manage them separately. The objective is to stabilise ongoing fund operations and ensure equal treatment of investors.
A Side Pocket functions as an independent sub-fund into which assets are transferred when they become temporarily non-tradable — for instance due to market disruptions, sanctions, or pending legal proceedings. The main fund remains open for subscriptions and redemptions, while the Side Pocket is frozen until the illiquid assets are sold or otherwise resolved.
Investors retain proportional interests in both parts of the fund and receive separate valuations and account statements.
For managers of collective assets under Art. 24 FINIA, enhanced requirements apply to governance, investor communication, valuation, and risk management when Side-Pocket mechanisms are foreseen or activated in managed funds.
In such cases, managers must document the conditions under which Side Pockets may be created, the valuation methodologies applied to affected assets, and the investor communication process. Fund contracts and prospectuses must be amended accordingly and approved by FINMA. The creation or dissolution of a Side Pocket is reportable and subject to review by the audit firm.
For funds that do not foresee Side-Pocket mechanisms, there is no immediate implementation requirement.
However, regulators expect that the topic be explicitly assessed within the fund’s governance and risk-management framework and appropriately documented.
