Why Malta as a fund jurisdiction?

  • EU member states since 2004.
  • Skilled professionals.
  • Attractive set-up and operational costs.
  • Attractive and competitive tax system with over 65 double tax treaties based on the OECD model.
  • Funds may be passported to any of the other twenty-seven EU member states.
  • Efficient legislation which caters for the interests of both the fund business as well as the investors.
  • Flexible & versatile legal framework.
  • Set of frameworks available, including SICAVs, UCITS, Professional Investor Funds (PIFs) and Alter;native Investment Funds (AIFs).
  • Rigorous yet flexible regulator.
  • International Financial Reporting Standards used since 1997.

Fund Structures

Professional Investor Fund (“PIF”)

Local legislation contemplates a Professional Investor
Fund (also known as a “PIF”) as a particular type of collective investment scheme (CIS) that can be used for setups commonly referred to as “hedge funds” or “alternative investment funds”. A PIF is essentially a non-retail CIS which can be either private or public in nature. PIFs are specifically designed to attract high net worth investors with limited regulation and oversight. The underlying assets in which PIFs can invest range from transferable securities, private equity, immovable property and infrastructure, to the more complex asset classes such
as derivatives.

PIFs typically enjoy the fast processing of licensing procedures, and the MFSA does not apply burdensome obligations to these types of CISs. The MFSA’s principal objective is to impose less onerous obligations regarding information and documentation, especially when service providers are appointed to carry out activities which require licensable activities.

Main advantages of PIFs in Malta

  • The level of costs involved is relatively low and very competitive.
  • No Investment or leverage restrictions.
  • Malta’s single regulator and supervisor, the MFSA, is approachable and seeks to provide a timely and efficient service. PIFs are licensed by the MFSA but are not subject to detailed regulatory requirements by the regulating authority.
  • PIFs can be self-managed without the need to appoint a third-party manager.
  • A PIF can also appoint an external Investment Manager which is regulated in a country which is not a Recognised Jurisdiction. In this case, the MFSA would normally carry out an assessment on the regulatory requirements applicable to the Investment Manager.

Undertakings for the Collective Investment in Transferable Securities (UCITs)

UCITS (Undertakings for Collective Investment in Transferable Securities) are harmonized European retail fund products that can operate throughout the EU on the basis of a single authorization from one-member state, provided that it follows certain notification procedures. UCITS offer a high degree of investor protection and are recognized by regulators worldwide. They can be marketed to both retail and institutional investors.

UCITS usually invest in transferable securities such as:

  1. Shares in companies and other securities equivalent to shares in companies.
  2. Bonds and other forms of debt securities.
  3. Any other negotiable securities which carry the right to acquire any such transferable securities by subscription or exchange.
  4. UCITS may also invest in money market instruments, financial derivative instruments and other collective investment schemes.

Main advantages of UCITS

  • Up-to-date regulatory framework
  • Offers the best legal protection to investors
  • Regulatory Compliance Oversight
  • Structuring opportunities
  • EU passporting rights
  • Lower costs
  • Economies of scale

About the Fund

The scheme’s head office and registered office are to be both established in the country of incorporation. There must be a minimum of two directors, at least one independent from the manager and the custodian. The investment manager is responsible for the administration of the scheme (when an administrator is not appointed). Where appointed, the administrator must be a recognized administrator. The custodian must be a licensed institution or such other body or association acceptable to the regulator MFSA, with a place of business in Malta.

The fund may either be self-managed or managed by a company approved by the regulatory body in the respective EU/EEA jurisdiction where it is incorporated. Must have satisfactory financial resources and liquidity at its disposal. Managers must demonstrate sufficient and relevant experience. All roles, responsibilities and experience must be described in the fund prospectus.

Alternative Investment Funds (AIFs)

The Alternative Investment Fund Managers Directive (“AIFMD”) is intended to create a harmonized framework for the management and marketing of non-UCITS funds within the context of a high level of investor protection. It prescribes rules for the authorization, operating conditions and transparency obligations to be applied to alternative investment fund managers (“AIFMs”) and for the marketing of alternative investment funds (“AIFs”) to professional investors throughout the EU.

An AIF may be set up as an open-ended or closed-ended fund which may take the form of a SICAV, a contractual fund, a unit trust or a limited partnership. the vehicle most commonly utilized for the setting up of AIFs in is the SICAV. The SICAV may be set up as multi-fund company i.e.; a fund which comprises of numerous sub-funds. The remit of the AIFMD is particularly wide due to its all-encompassing definition of AIFs. In effect, “AIFs” are collective investment undertakings which:

  • Do not require authorization under the UCITS Directive
  • Raise capital from a number of investors with a view to investing it in accordance with a defined investment strategy

Therefore, hedge funds, private equity funds, real estate funds, venture capital funds and others all fall within the scope of the AIFMD.

Notified Alternative Investment Fund (NAIF)

Notified Alternative Investment Funds (“NAIFs”) are a particular type of AIFs which are exempt from the licensing requirement established by the Investment Services Act in respect of CIS.

The NAIF regime are quick to market, and address time to market limitations which fund managers meet when setting up regulated vehicles.

NAIFs established in Malta by an EU AIFM, are subject to a swift registration process of 10 working days from the date of submission of a notification pack with the authority and are only subject to registration and not a license.

The NAIF is a flexible vehicle and may be established as any structure allowed under Maltese law including:

  • An investment company with variable share capital (SICAV);
  • Limited partnership under the Companies Act;
  • An Incorporated Cell company (ICC);
  • Contractual fund under the Investment Services Act (Contractual Funds) Regulations.
  • ARecognized Incorporated Cell (RICC);
  • Unit trust under the Trust and Trustees Act;

About the NAIF Fund Structure

Since the NAIF structure is not regulated, NAIFs can only be established in respect of AIFs investing in financial instruments. Other investments that the regulator deems risky and in need of regulation will be automatically excluded from being set up as a NAIF. Example include real estate, works of art, precious metals and loans funds.

The regulator will therefore supervise the fund manager (AIFM) established in Malta or in the EU, thus allowing the AIF itself to be notified so that the Authority can insert it into the list of records it maintains which are listed on the MFSA’s website. This benefit is very attractive to fund managers seeking an efficient and fast venue for domiciliation of their fund.

The AIFM is responsible for selecting the service providers of the NAIF and must make sure that each service provider is qualified and has the necessary ability and knowledge to provide the services in respect of which it is engaged. The NAIF may appoint service providers as it deems necessary but is it is bound to appoint an AIFM, Depositary, Auditor and an Administrator.

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