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Since launching its Professional Investor Funds (“PIF”) regime in 2000, Malta has made steady progress in attracting fund promoters to the jurisdiction, with year-on-year growth in both the number of funds and the assets under administration. The ever popularity of the PIF in Malta was due to the fact that investment restrictions are kept at a minimum and the Fund can hold investments in a variety of movable and immovable property. Additionally, in most cases, external service providers need not be appointed.
Features of Professional Investor Funds (PIF) under Maltese Law
Governed by the Investment Services Rules of the Laws of Malta, the Professional Investor Fund (PIF) is mostly common for the setting up of Hedge Funds. Nonetheless, due to its flexibility and limited restrictions have also attracted a number of different fund strategies involved into Private Equity, Real Estate and Venture Capital.
During mid-2016, the Malta Financial Services Authority have re-defined the definition of a Professional Investor Fund, mainly the target investor base. Prior to this, PIFs had the option to select between three types of categories, being:
- Experienced Investors with a minimum investment of €/$ 10,000 (or equivalent);
- Qualifying Investor with a minimum investment of €/$ 75,000 (or equivalent);
- Extraordinary Investors with a minimum investment of €/$ 750,000 (or equivalent).
Following such a consolidation in the Investment Services rule books, the MFSA have swept away PIFs targeting Experience and Extraordinary investors whilst keeping into place Professional Investor Funds targeting Qualifying investors. Furthermore, the regulator has also revamped what constitutes a Qualifying investor. That said, the following criteria need to be satisfied in order to be classified as a Qualifying Investor:
- Invest a minimum of €100,000 or its currency equivalent in the AIF/PIF which investment may not be reduced below such a minimum at any time by way of partial redemption;
- Declare in writing to the Manager and the AIF/PIF that they are aware of and accept the risks associated with the proposed investment;
- Satisfy, at least, one of the following:
- A body corporate which has net assets in excess of €750,000 or which is part of a group which has net assets in excess of €750,000 or, in each case, the currency equivalent thereof;
- An unincorporated body of persons or association which has net assets in excess of €750,000 or the currency equivalent;
- A Trust where the net value of the Trust’s assets is in excess of €750,000 or the currency equivalent;
- An individual whose net worth or joint net worth with that of a person’s spouse, exceeds €750,000 or the currency equivalent;
- A senior employee or a director of a service provider to the AIF/PIF.
An important feature to note regarding Professional Investor funds is that such structures will not benefit from the passport rights within the EU/EEA as carried by the AIFM and UCITS Directives respectively. Therefore, the PIF is subject to Private Placement.
Impact of the Alternative Investment Fund Managed Directive (AIFMD)
Following the harmonisation of the AIFM Directive within the Malta Investment Services Rule books back in 2013, fund managers and promoters may still opt for the less onerous De Minimis hedge fund licence. For a self-managed hedge fund having its day-to-day portfolio management engaged within an investment committee as appointed by the Directors of the Fund, the AIF must have an AUM of less that €100mil – including assets held on leverage – or else have an unleveraged AUM of €500mil and a redemption gate to investors of not less than 5 years.
On the other hand, for a hedge fund structure being classified as Externally Managed to qualify for the De Minimis exemption, the AIFM must either manage leveraged AIF(s) with combined assets of less than €100m, or unleveraged AIF(s) with combined assets below €500m, provided in the latter case that the AIF(s) have locked investors in for the first five years from initial investment.
In respect of the above mentioned criteria, the notional value of the assets must be considered in order to consider in applying for a De Minimis exemption.
Benefits of a Malta Professional Investor Funds (PIF)
A Professional Investor Fund has been mainly used for hedge fund set-ups due to the fact that such structures can hold underlying assets ranging from transferable securities to more complex asset classes pertaining to the world of debt financing and derivatives. Nonetheless, such structures may also target Private Equity and Real Estate Funds. Below are the main benefits of a PIF.
|Flexible||PIFs are not burdened with restrictions whilst the Fund has the option, and not the mandatory, to appoint an administrator and custodian|
|Minimal Investment Restrictions||Some minimal restrictions may only apply to PIFs targeting Experienced investors due to their quasi-retail nature|
|Licensing Process||Provided that all required documentation upon application are submitted to the MFSA in a timely manner, the authority shall issue an “in principle” approval within a reasonable time period, averaging 8 to 12 weeks|
|Can be Self-Managed||Under the PIF regime the fund may opt to be self-managed without the need to appoint a 3rd party manager. This means that the management of the fund would be undertaken by the investment committee|
|Free Choice of Service Providers||Promoters may continue to use the service of any external service provider with whom they have already a professional history. In fact, contrary to other jurisdictions, the appointing of a manager, administrator and custodian (except PIFs targeting experience investors) are not mandatory|
|Shariah-Compliant||Malta offers PIFs compatible with Islamic funding structures and financing vehicles, namely Ijarah and Murabahah funds|
Fees of a Malta Professional Investor Funds (PIF)
Regulatory fees comprise of a non-recurring Application fee payable on submission of the Application for a PIF and an annual supervision fee which is due on the anniversary of the license being granted as outlined below.
|Application Fees||Ongoing Supervisory Fees|
|At Scheme Level||€2,000||€2,000|
|Per sub-Fund (up to 15)||€1,000||€600|
The simplest option would be a self-managed De Minimis licence and thus having an Investment Committee involved in the portfolio management of the Professional Investor Fund (PIF). The Investment Committee will be subject to the terms of reference as agreed and must be composed of, at least, three (3) members. Although the Investment Committee may act as a whole, on the other hand it may delegate the day-to-day investment management of the Fund to a portfolio manager (such as an individual, De Minimis Management Company or a MiFID licenced firm). The investment committee may also appoint independent experts, consultants and advisors to assist in the ongoing operation of the structure. The latter is mostly common in Private Equity and Real Estate Funds which underlying investments are hard to value investments.
Another alternative would be an externally managed structure. In such a scenario, the investment committee would lie at the level of the manager and not appointed by the Board of the Fund. It should be noted that the External Manager should fall within the category of a De Minimis licence holder. A Full-Scope AIFM is not eligible to act as External Manager for Professional Investor Funds (PIFs).
The initial share capital would depend on whether the Fund is a self-managed or externally managed. A self-managed structure is subject to an initial share capital of €125,000 and, should its NAV fall below such amount, the MFSA must be notified. An Externally Managed Fund may, on the other hand, have as minimum initial share capital €1,165.
The main legislations governing PIFs are the Investment Services Act (Cap. 370 of the Laws of Malta) and, depending on the corporate form of the Professional Investor Fund, the Companies Act (Cap. 386 of the Laws of Malta). Additionally, Professional Investor Funds are also subject to the Standard Licence Conditions (SLC) in Part B of the Rules whereby outlining the ongoing conditions in the operation of a PIF. Should the PIF be also listed on the Malta Stock Exchange, then the Fund is also subject to the Admissibility requirements for Collective Investment Schemes (Chapter 8 of the Listing Rules).
Prior to the revamp of the target investors for a Professional Investor Fund in mid-2016, PIFs targeting Experienced Investors carried some investment restrictions due to their quasi-retail nature. Following this, Professional Investor Funds are catered for Qualifying Investors and thus investment restrictions would be subject to the Fund’s Offering Documents.
It is noted that Real Estate Funds applying for a PIF licence are subject to the investment restrictions as laid by the Property Funds Policy as issued by the MFSA.
Malta has made steady progress following the introduction of the PIF regime back in 2004. Due to its flexibility, the regime applies to a number of fund strategies in the likes of Hedge Funds, Real Estate, Private Equity, Venture Capitals, Loan and Mezzanine. As noted above, Professional Investor Funds should be targeted to Qualifying Investors.
The Malta licensed PIF must be composed of, at least, three (3) Board Members and, where applicable, an Investment Committee of at least three (3) members of which one is local. The PIF is not obliged to appoint an administrator and a custodian (except for Real Estate Funds) but must have a Compliance Officer and an MLRO at all times. The Fund must also be subject to an annual audit and thus an Auditor is required. The PIF may also have unlimited counterparty agreements in the process of operating the Fund. Where none of the above providers are local, the Fund must appoint a local representative who will be the main point of contact with the MFSA. The Fund must also have a Maltese registered office.
In terms of Maltese law, the liability of members is restricted up to their invested capital should the SICAV undergo insolvency and thus subject to the pari passu ranking of creditors proceedings. In the case of a Limited Partnership (LP), the limited partners are limited to the amount contributed in the LP.
When applying for a PIF licence, the applicant should provide the MFSA with a duly filled application form together with a Memorandum and Articles, Offering Memorandum (and Offering Supplement/s in the cases of sub-Fund/s), the applicable fee, PQs of Directors, Compliance Officer, MLRO and, where applicable, Investment Committee members. The MFSA must also be provided with Competency Forms of the acting Compliance officer, MLRO and, where applicable, the portfolio manager.
Subject to the complexity of the structure and the completeness of the application pack, the MFSA would usually issue an “in principle” approval within a period of two to four months.
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