As part of the Investment Services Rules within the Laws of Malta, the MFSA has put in place a set of rules and regulations dealing with collective investment schemes authorized to invest through loans. These Loan Fund Rules apply specifically to loan funds in addition to any laws, regulations, or standard licence conditions that are already applicable to Alternative Investor Funds (“AIFs”) and/or Professional Investor Funds (“PIFs”).
Through the adoption of these the Rules, the Authority has sought to address a number of risks that are primarily associated with lending activities. Risks to the stability of the funds are addressed through the inclusion of exposure limits. To mitigate the transmission, or acquisition, of unwarranted credit risk, loan funds are also required to follow strict credit assessment standards and fund managers must satisfy special competence and remuneration requirements.
Key Features of a Malta Loan Fund
- Fund managers will be able to establish a loan fund either as PIFs or AIFs
- Funds are ideally structured as Closed-Ended in order to reduce liquidity risks
- Funds governed by the Loan Fund Rules may:
- Finance unlisted companies & SMEs (excluding credit/financial institutions), and/or
- Acquire a portfolio of loans
- Leverage is not allowed
Loan Funds shall only target:
- Professional Investors as defined by MiFID
- Investors who elect to be treated as professionals as per Sec II of Annex II of MiFID and who commit to invest a minimum of €100,000
Loan Funds must, at least, appoint:
- Fund Manager (unless self-managed);
- Custodian / Depository;
- Compliance Officer;
- Money Laundering Reporting Officer (MLRO);
- Valuer responsible for the valuation function of loans;
- Local Director.
- The Scheme shall not be allowed to short-sell;
- The Scheme may invest up to 30% of its assets in liquid securities;
- Not more than 10% of the Fund’s capital is to be invested in a single undertaking;
- May not invest more than 10% of its capital in another loan fund operating within the same investment restrictions;
- May not acquire more than 25% of its capital in any other loan fund;
- Borrowing of cash is restricted up to 30% of NAV
Interpretation of Terms
For the purpose of the Investment Services Rules, the term “closed-ended” shall be understood as referring to a collective investment scheme which:
- Does not raise capital through the continuous sale of units or shares;
- Has a fixed duration
- Units can be redeemed at the end of the duration of the Scheme (“waterfall”)
Duration of Fund
Setting up a Fund governed by the Loan Fund Rules would entail that such Fund will be of a fixed duration nature. It should be noted that the “duration” of the scheme shall be sufficient to cover the life-cycle of the loans granted by the Scheme and the investment objectives thereof.
The Scheme may either be self-managed or else appointing an external manager carrying the responsibility for portfolio management and risk management. The Fund Manager may be any of the below:
- A de minimis fund manager licenced in terms of the Act;
- A fund manager duly authorised in terms of the AIFMD and licensed in terms of the Act;
- A de minimis fund manager authorised/registered in another member state;
- A fund manager authorised/licensed in a Recognised Jurisdiction.
It is noted that the Fund Manager need not have an established place of business in Malta. However, should this be the case, a Cat 2 licence would be required.