SWITZERLAND – The OECD has called on the Swiss government to relax restrictions on pension funds investing in venture capital.

The Organisation for Economic Cooperation and Development, in its 2005 Economic Survey of Switzerland, also called for initial public offerings to be facilitated.

“Finding financing is one of the main hurdles for business founders. Despite the very large capitalisation on the Swiss stock market, equity financing and venture capital play a very modest role in the financing of new businesses and risky innovation projects,” said an OECD spokesperson.

The report stated: “Although this could reflect low demand …there is room to improve framework conditions for such modes of financing.”

The spokesperson told IPE that despite improvements in recent years, there are still legal obstacles to the development of the supply of domestic venture capital, especially regarding the conditions under which second pillar pension funds can invest in venture capital.

The survey stated that while government plans to launch a tax-transparent company structure for venture capitalists “goes in the right direction”, proposals to reduce the double taxation of dividends, and therefore cutting the costs of equity financing “could be more ambitious”.

“Venture capital funding by pension funds is limited by the obligation for pension funds to obtain a minimum annual return. Given the long-term nature of pension obligations, the minimum guaranteed return could be redefined on a multi-annual basis,” said the spokesperson.

He added that in 2002, pension funds accounted for just 10% of venture capital – a lower share than in many other countries. A relaxation of restrictions would therefore help raise the available amount of financing for venture capital.

According to the Swiss Pension Fund Association (ASIP) president Hans Ender: “The limits imposed on pension_funds are not as strong as they seem.”

“If liabilities are lower than the assets, you are more free to deviate from the legal norms as long as the board of plan trustees can justifies them. But if the funding ratio is bad, the authorities will be careful, and ask you to be careful too.”