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Nicholas Warren, Chetcuti Cauchi Advocates

Malta: Europe’s sunshine jurisdiction

Malta hosts a wide range of service providers, all of whom are well versed in structuring and supporting alternative investment funds, fund administration, risk management and so on. According to the MFSA's statistics for Q1 2017, Malta had 26 recognised fund administrators, 115 Category 2 investment services groups, and 153 Company Service Providers. 

From a fund launch perspective, a total of 21 Professional Investment Funds (PIFs) were licensed and three Notified Alternative Investment Funds (NAIFs). 

"Overall, for the past 12 months fund formations in Malta have been strong," says Nicholas Warren, Manager, Corporate Services, Chetcuti Cauchi Advocates. "We've seen our share of redemptions, however, these have been surpassed by the overall number of new funds. 

"We have seen a number of different AIFs launch, including even a wine fund, and there are quite a few still going through the approval phase."

For those considering Malta, they have a variety of options, both regulated and unregulated. The PIF and the AIF are both regulated products, whereas the NAIF, which can only be established by an authorised AIFM, is unregulated and offers managers a faster route to market. 

As Warren explains: "The NAIF is certainly starting to gain traction among fund managers and law firms. It has a lot of potential and room for growth. That said, I think more needs to be done to raise awareness and explain that one can get to market within 10 business days after submitting the NAIF application to the MFSA. That is a big advantage."

Whether a fund sponsor opts for the PIF or AIF product will largely depend on the asset class and the starting NAV, in Warren's opinion, as well as the long-term marketing objectives and target investor profile.

"For example, we are in discussions with a potential client who wants to set up a small long-short fund. Initially, we thought the best choice would be to establish a PIF. But when learning that the strategy would be using leverage, and the overall exposure was going to move the fund beyond EUR100 million, we advised the fund manager that they would need an AIF. 

"Another manager, based in the UK, wants to get a fund up and running relatively quickly. They are a full-scope AIFM so they have opted to set up a NAIF."

From a legal entity perspective, he says the most common structure for hedge funds in Malta is the SICAV. This can be used for single fund structures and umbrella fund structures. In addition, promoters can choose to avail of the investment company with fixed share capital, limited partnerships, unit trusts, common contractual funds and one structure that is becoming increasingly popular: the Recognised Incorporated Cell Company (`RICC'). The RICC does not require a CIS license, but will need to obtain a recognition certificate from the MFSA. 

Warren says that the most recent regulatory update is that both the PIF regime and AIF regime have been consolidated. 

Previously, the PIF regime had Experienced, Qualifying and Extraordinary Investors. It now has one category: the Qualifying Investor Fund. The same is also true of the AIF.

Importantly, the MFSA is trying to reduce the licensing approval process for fund applications given that the time to market for fund sponsors is important. 

"They are looking to introduce guidelines and ask the applicant to provide a breakdown of the prospectus in order to identify the fund's key features, thus expediting the overall process," concludes Warren. 

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