Malta has become over the years an increasingly popular fund jurisdiction to foreign investors. Within the past ten years over 500 funds, with a total NAV exceeding €8 billion have been registered in Malta.
The legislation relating to funds has recently been revamped, in order to better cater for the international business environment. Being offered on a non-retail basis, Professional Investor Funds are hence subjected to more flexible rules and may avail themselves of a number of investment instruments, such as derivatives, real estate and private equity.
Malta's success in establishing itself as a investment fund domicile is mainly attributed to:
- An attractive fiscal environment
- A range of innovative investment vehicles
- A free choice of management style
– Management may be
- Delegated to third parties
- Managed from either outside Malta or from within the island
- Cheap set-up and operational costs
- A range of service providers available
- English is the official business language
- Flexibility due to a limitation of investment restrictions
- Use of benefits of Malta's extensive Double Taxation Treaties
- Fast licensing process
- Low qualification entry requirements
- Islamic law compliant
- Option to be listed on the Malta Stock Exchange
B. REGULATORY FRAMEWORK
Professional Investor Funds (PIFs) are non-retail investment funds and hence cannot be offered to the public. PIFs are a special class of Collective Investment Scheme (CIS), having as its object the collective investment of capital acquired by means of an offer of units for subscription.
Though Malta PIFs are highly regulated, they still remain a flexible investment vehicles for investors who wish to establish a collective investment scheme but which falls short from being classified as an Alternative Investor Fund (AIF) which fall under the AIFM Directive.
Collective Investment Schemes in Malta are licensed and regulated by the Malta Financial Services Authority (MFSA) which ensures a stable investment environment targeted to protect the consumers of such financial services in compliance with the law.
In fact, prior to granting a licence, the MFSA must be satisfied that the applicant and any service providers to such a business are 'fit and proper' and it does this via the submission of detailed Personal Questionnaires, Application Forms and additional supporting documentation.
In principle, the "fit and proper" requirement revolves around the management and service providers of the PIF being of sufficient integrity, competence and solvency in order to be able to conduct the business properly.
The application process to obtain such a license typically involves three phases:
- Preparatory Phase – involves meetings with the MFSA officials, preparation and compilation of the application as well as any supporting documentation.
- Pre-Licensing Phase – MFSA issues an 'in principle' approval of the licence.
- Post-Licensing Phase – Involves any post-licensing matters as directed by the MFSA.
The typical application timeline lasts around 6 to 9 months, depending on the complexities and structures involved.
C. VEHICLES FOR PIF SET-UP
There are a number of legal forms how to structure the PIF, including the following:
- SICAV – an investment company with variable share capital which is the most common structure, since it can also be set-up as an open-ended fund.
- INVCO - an investment company with a fixed share capital.
- Unit Trust
- Contractual Fund
- Limited Partnership
D. TYPICAL STRUCTURES
The individual set-up of the PIF typically depends on the promoters' explicit requirements. However, the typical structuring is a division of shares into voting and non-voting shares as follows:
- "Voting Shares" – these are issued to the promoters of the PIF and will entitle them to the effective control over the operation of the fund.
- "Non-Voting Shares" – these are issued to investors of the fund.
E. INVESTMENT RESTRICTIONS
Generally, the PIF do not have any restrictions with regards to investment decision making and policies and are hence rather flexible with the investment objectives, unlike retail-funds.
PIFs are hence likewise exempt from risk spreading and there are no leverage or borrowing restrictions.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.