Alternative Investing – Benefits of Maltese Hedge Funds
Key Data About Malta
- Malta became a member state of the EU in May 2004 and joined the Euro Zone in 2008.
- English is widely spoken and written in Malta and is the principal language for business.
Factors Contributing to Malta’s Competitive Advantage
- Robust legal and regulatory environment with a legislative framework in line with EU Directives. Malta incorporates both jurisdictional systems: civil law and common law, as business legislation is based on English law principles.
- Malta boasts a high level of education with graduates representing a cross-section of the various disciplines related to financial services. Specific training in financial services is offered at various post-secondary and tertiary education levels. The accounting profession is well-established on the island. Accountants are either university graduates or in possession of a certified accountant qualification (ACA/ ACCA).
- A proactive regulator that is very approachable and business minded.
- An ever-growing supply of high-quality office space for rent at prices cheaper than in Western Europe.
- Malta’s development as an international financial centre is reflected in the range of financial services available. Complementing the traditional retail functions, banks are increasingly offering; private and investment banking, project finance, syndicated loans, treasury, custody, and depositary services. Malta also hosts several institutions specialising in trade-related products, such as structured trade finance, and factoring.
- Maltese standard time is one hour ahead of Greenwich Mean Time (GMT) and six hours ahead of US Eastern Standard Time (EST). International business can therefore be managed smoothly.
- International Financial Reporting Standards, as adopted by the EU, are entrenched in company legislation and applicable since 1997, so there are no local GAAP requirements to deal with.
- A very competitive tax regime, also for expatriates, and an extensive and growing double taxation treaty network.
- No restrictions on the granting of work permits for non-EU nationals.
Malta Hedge Funds: Professional Investor Funds (PIF)
Maltese legislation does not directly refer to hedge funds. However, Malta hedge funds are licensed as Professional Investor Funds (PIFs), a collective investment scheme. Hedge funds in Malta are usually set up as open or closed-ended investment companies (SICAV or INVCO).
The Malta Professional Investor Funds (PIFs) regime consists of three categories: (a) those promoted to Qualifying Investors, (b) those promoted to Extraordinary Investors, and (c) those promoted to Experienced Investors.
Certain conditions need to be satisfied to qualify under one of these three categories and therefore to be able to invest in a PIF. PIFs are collective investment schemes designed for professional and high-net-worth investors with a certain degree of expertise and knowledge in their respective positions.
Definition of a Qualifying Investor
A “Qualifying Investor” is an investor who fulfils the following criteria:
- Invests a minimum of EUR 100,000 or its currency equivalent in the PIF. This investment may not be reduced below this minimum amount at any time by way of a partial redemption; and
- Declares in writing to the fund manager and the PIF that said investor is aware of, and accepts the risks associated with the proposed investment; and
- Satisfies at least one of the following:
- A body corporate that has net assets in excess of EUR 750,000 or part of a group that has net assets in excess of EUR 750,000 or, in each case, the currency equivalent thereof; or
- An unincorporated body of persons or associations with net assets in excess of EUR 750,000 or the currency equivalent; or
- A trust where the net value of the trust’s assets is more than EUR 750,000 or the currency equivalent; or
- An individual whose net worth or joint net worth combined with his/her spouse exceeds EUR 750,000 or the currency equivalent; or
- A senior employee or director of a service provider to the PIF.
What are Malta PIFs Used for and What are their Benefits?
PIFs are often used for hedge fund structures with underlying assets ranging from transferable securities, private equity, immovable property, and infrastructure. They are also commonly used by funds engaging in cryptocurrency trading.
PIFs offer many benefits, including:
- PIFs are intended for professional or high-worth investors and do not therefore have the restrictions usually imposed on retail funds.
- There are no investment or leverage restrictions and PIFs can be set up to hold just one asset.
- There is no requirement to appoint a Custodian.
- A fast-track licensing option available, with approval within 2-3 months.
- Can be self-managed.
- May appoint administrators, managers, or service providers in any recognised jurisdictions, members of the EU, EEA, and OECD.
- Can be used to set up for virtual currency funds.
There is also the possibility of re-domiciling existing hedge funds from other jurisdictions to Malta. In this way, the fund’s continuity, investments, and contractual arrangements are continued.
Malta Alternative Investment Funds (AIF)
AIFs are collective investment funds that raise capital from investors and have a defined investment strategy. They do not require authorisation under the Undertakings for the Collective Investment in Transferable Securities (UCITS) regime.
The recent transposition of the Alternative Investment Fund Directive (AIFMD), through amendments to the Investment Services Act and the Investment Services Rules and the introduction of subsidiary legislation has created a framework for the management and marketing of non-UCITS funds in Malta.
The scope of the AIFMD is broad and covers the management, administration, and marketing of AIFs. However, it mainly covers the authorisation, operating conditions, and transparency obligations of AIFMs and the management and marketing of AIFs to professional investors throughout the EU on a cross-border basis. These types of funds include hedge funds, private equity funds, real estate funds, and venture capital funds.
The AIFMD framework provides a lighter or de minimis regime for small AIFMs. De minimis AIFMs are managers who, 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 five years from the initial investment in each AIF.
A de minimis AIFM cannot use the EU passporting rights deriving from the AIFMD regime.
However, any AIFM whose assets under management fall below the above thresholds, may still opt into the AIFMD framework. This would render it subject to all of the obligations applicable to full-scope AIFMs and enable it to use the EU passporting rights deriving from the AIFMD.