Malta Funds/Collective Investment Schemes
Malta Investment Funds: Retail Funds
The Investment Services Act, 1994, establishes the regulatory framework for Malta investment funds and investment services. Malta investments funds are proving to be popular amongst fund managers who would like to promote their funds in Europe.
The Investment Services Act, 1994, provides the necessary infrastructure for the setting up of investment funds in Malta as corporate structures, unit trusts or through contractual arrangements, thereby endowing fund managers of Malta funds with the flexibility of using the appropriate structure in the circumstances.
Structures for both open-ended and close-ended Malta investment funds are provided for. In addition, Malta funds may be set up as either public or private funds. It is also possible for such funds to obtain a primary or secondary listing on the Malta Stock Exchange.
Malta Investment Fund Setup
A Malta investment fund being organized under the laws of Malta or operating in or from Malta requires a licence under the Investment Services Act, 1994. There are however a number of exemptions from the need of an investment fund licence, which are applicable in particular circumstances.
The applicant for a Malta investment fund must be “fit and proper” and willing and capable to act in accordance with the laws associated with Malta investment funds as well as any Standard Licence Conditions attached to the licence issued. The “fit and proper” test is a fundamental regulatory concept which requires potential and existing licencees and their qualifying shareholders and senior staff to demonstrate competence, integrity and solvency in all their dealings. These requirements for Malta investment funds apply both at the licensing stage and on an on-going basis thereafter.
Malta Hedge Funds: Professional Investor Funds
Maltese legislation does not directly refer to hedge funds. Malta hedge funds are licensed as Professional Investor Funds (PIFs) which is a type of collective investment scheme. Hedge Funds in Malta are usually set up as open or closed ended investment companies (SICAV or INVCO) or as limited partnerships or unit trusts.
The Malta Professional Investor Funds (PIFs) regime consists of three categories, namely those promoted to Qualifying Investors, those promoted to Extraordinary Investors and those promoted to Experienced Investors. Certain conditions need to be satisfied in order to be able to qualify under one of these three categories and hence to be able to invest in a PIF.
There is also the possibility of re-domiciling existing hedge funds from other jurisdictions to Malta. In this way, there is continuity of the fund, its investments and contractual arrangements.
Alternative Investment Funds
AIFs are collective investment undertakings which raise capital from a number of investors with a view to investing it in accordance with a defined investment strategy and do not require authorisation under the UCITS regime. The recent transposition of the Alternative Investment Fund Directive (AIFMD) through amendments to the Investment Services Act and the Investment Services Rules as well as the introduction of subsidiary legislation, created a framework for the management and marketing of non-UCITS funds. The scope of the AIFMD is broad and covers the management, administration and marketing of AIFs. It mainly covers the authorisation, operating conditions and transparency obligations of AIFMs and for the management and marketing of AIFs to professional investors throughout the EU on a cross-border basis. These type of funds include hedge funds, private equity funds, real estate funds and venture capital funds amongst others.
The AIFMD framework provides for a lighter or de minimis regime for small AIFMs. De minimis AIFMs are managers which, whether directly or indirectly, manage portfolios of AIFs whose assets under management collectively do not exceed the following amounts:
1) €100 million or
2) €500 million for AIFMs managing only unleveraged AIFs with no redemption rights exercisable within 5 years from the date of initial investment in each AIF.
A de minimis AIFM is not able to use the EU passporting rights deriving from the AIFMD regime. However, any AIFM whose assets under management fall below the above thresholds may still choose to opt in to the AIFMD framework. This would render it subject to all of the obligations applicable to full-scope AIFMs but would also enable it to make use of the EU passporting rights deriving from the AIFMD.
Malta Funds: Private Collective Investment Schemes
When referring to Malta investment funds, a private collective investment scheme is a scheme which has a maximum of 15 participants. The participants must be close friends or relatives of the promoters and the scheme must be essentially private in nature. The scheme must also not qualify as a Professional Investor Fund (PIF).
Malta funds qualifying as private collective investment schemes are not subject to a licence but shall be subject to recognition in writing by the Malta Financial Services Authority. The Malta Financial Services Authority will only grant recognition, if the fund’s directors and other officers and participants are fit and proper persons. Thus, the identity of the ultimate beneficial owners must be made known to the Malta Financial Services Authority.
In Malta, a recognised private fund or collective investment scheme need not appoint an external manager and cannot be listed on the Malta Stock Exchange.
Such schemes would target special sectors, such as Malta venture capital or development funds, Malta money market funds ,futures and options funds as well as property investment funds. There are many variations of the property investment type of fund such as funds which mainly invest in property management or property financing companies as well as foreign-based property funds which mainly invest in property and are promoted to Maltese investors.
Companies providing back office services in the financial services sector must seek the approval of the Malta Financial Services Authority prior to commencing operations. Furthermore, one must note that it is no longer possible to set up a Malta offshore company.
The fiscal treatment of funds depends on certain characteristics. There are a number of fiscal incentives applicable to funds and their investors.
Advance revenue rulings may be obtained as to the tax treatment of transactions involving financial instruments and international business. These rulings apply for 5 years and may be renewed for a further 5 years. Such rulings also survive any change in the relevant legislation for a maximum period of 2 years.
The firm’s investment managers advise and assist clients in the investment services and funds sectors both in the setting up process and on an on going basis thereafter, including assistance to obtain any relevant license, authorization or recognition.