Malta’s reputation as a hedge fund domicile was established with the island’s accession to the European Union way back in May 2004. Malta has long been chasing big fund business, but the island is now realising that its strengths lie in being the home of fund managers and administrators, while providing an environment that is attractive to smaller funds and start-up managers.
Fund managers and promoters regularly comment on the high level of product flexibility that the island offers. Funds, in the alternative space, may be licensed as either Alternative Investment Funds (AIFs) or as Professional Investor Funds (PIFs). While AIFs appeal to fund promoters wishing to passport the fund throughout the EU under the Alternative Investment Fund Managers Directive (AIFMD), the PIF licence is the licence of choice for smaller funds (managed by De Minimis EU-based Managers, Managers based outside the EU, or self managed funds that are “below the threshold“), which would benefit from certain exemptions contained in the AIFMD. Malta’s legislation also provides for the setting up of UCITS (Undertakings for Collective Investment in Transferable Securities), while the latest addition to Malta’s fund framework is a manager-led product, the Notified AIF or NAIF, which has been designed to speed up time-to-market and can be registered within 10 days.
Maltese-registered funds can be set up in a number of possible legal forms, including open-ended and closed-ended corporate entities, unit trusts, contractual funds, and limited partnerships. The investment company with variable share capital (SICAV) is to date the most widely used legal form, and it can be structured to include master feeder funds and umbrella funds with segregated sub-funds. Whereas the multi-fund SICAV allows the creation of sub-funds whose assets and liabilities constitute a distinct patrimony from those of other sub-funds and the SICAV itself, the island also introduced Incorporated Cell Companies (ICCs) and structures for the creation of fund platforms.
Welcoming Fund Platforms
The introduction of the Recognised Incorporated Cell Company (RICC) has led to significant growth in the field of fund platform providers. This is a structure which allows the ‘core’ to provide, in exchange for payment of a platform fee, certain administrative services to its incorporated cells. The RICC has become a popular choice for smaller managers and start-up funds as it offers a plug and play solution. As the RICC is itself a separate company, its shareholders can benefit from Malta’s tax regime for limited liability companies.
A Top Management Location
The growth of the investment funds sector has not only been driven by the registration of funds in Malta, but has also led to the development of service clusters in asset management and asset servicing which have today become renowned for their knowledge, commitment and highly cost competitive service offering. Fund managers and fund administrators based in Malta today service funds in any other locations. Malta offers flexible structures for asset managers, including Alternative Investment Fund Managers (AIFMs) and UCITS management companies. However, the island has also become popular among De Minimis AIFMs, which are not required to comply with the requirements emanating from the AIFM Directive. There is widespread agreement that Malta has reached a high level of sophistication on the asset management and servicing side, and emerged as a veritable location for start-up managers.
The MFSA remains the sole regulator of financial services in Malta performing its regulatory function in a constructive manner. Maintaining very high standards of compliance, the MFSA has managed to find the perfect balance that allows business to operate without needless complications. Operators based in Malta cite the licensing process with the MFSA as being quick, thorough and efficient. The MFSA also practices an ‘open-door’ policy which allows fund promoters to constructively engage with the Authority before, during and after the licensing process.
Free Choice of Management Style
Malta allows for funds to opt for the self-managed route as an alternative to external third-party management. Self-managed funds have to appoint an in-house investment committee, which is expected to hold the majority of its meetings in Malta.
Freedom to Use Foreign Service Providers
Another advantage the finance centre holds over established domiciles is that funds registered in Malta are not required to appoint a local administrator. This non-protectionist approach gives promoters the flexibility to work with institutions with which they have already established a business relationship. Nevertheless, a high percentage of funds opt to have a Maltese administrator; a clear testament to the high quality of service provided by local administrators. The same applies for custodians providing safe-keeping arrangements to Professional Investor Funds; PIFs do not need to appoint local service providers.
Experienced Service Providers
A strong network of fund managers and administrators, as well as a number of other prominent service providers, have set up in Malta, and together with local players, a well-developed and comprehensive industry cluster has evolved. The country’s legal firms are well-versed in the setting up corporate vehicles, the preparation of offering documents or the regulatory procedures for licensing, and most are part of international networks such as Lex Mundi and Lexis Nexis and are regularly ranked on Chambers, Martindale Hubbell or similar.
Highly Competitive Set-up and Operational Costs
Funds and managers in Malta have long been benefitting from a highly cost competitive operational environment. While many other international centres have become expensive, Malta offers various other cost advantages: the cost of staff and office space is still below Western European levels, and professional and supervisory fees are also significantly lower.
Competitive Tax Structure
Malta’s attractive fiscal environment is another key success factor found in Malta which maintains a strong network of double tax treaties and where there will be no tax at the fund level and non-resident investor. Asset managers are also afforded a number of tax benefits. Individuals, including asset managers, who hold senior positions within MFSA-licensed financial services operators will benefit from a favourable tax rate of 15 per cent on their employment income earned through this position.
Key Facts and Figures
- Fund Administrators: 26
- Fund Managers: 80+
- Cell Companies: 6
- Incorporated Cells: 21
- Investment funds (including sub-funds) registered in Malta: 670 (of which):
- AIFs: 101
- PIFs: 450
- UCITs: 115
- Retail non-UCITs: 5
- Notified AIFs: 18
- Net Asset Value of Malta domiciled Funds: €10.8 billion as at end 2017 (of which):
- AIFs: €3.33 bn
- PIFs: €4.7 bn
- UCITs: €2.71 bn
- Administration of Funds (June 2017)
- Malta domiciled funds administered in Malta: 590
- Non-Malta domiciled funds administered in Malta: 176
- Administered from outside Malta: 13.8%
- Administered from Malta: 86.2%
- Management of licensed Funds (June 2017)
- Managed from outside Malta: 30.2%
- Managed in Malta: 29.9%
- Self-managed: 39.9%
- New authorisations 2017 – 97
- AIFs: 9
- PIFs: 58
- UCITs: 30
- Asset Allocation
- Diversified funds: €4.3 bn
- Equity funds: €2.85
- Bond funds: €1.79
- Mixed funds: €0.84