Download The Malta Alternative Investment Funds

The Malta
Alternative
Investment Funds
A technical guide
June 2016
Foreword
It is my great pleasure to welcome you to our 2016 edition of
“The Malta Alternative Investment Funds – A technical guide.”
Alternative Investment Funds are fast becoming one of Malta’s
primary investment fund vehicle for all types of professional and
sophisticated investors, which funds are a direct product of the
AIFM directive. This directive aims to establish common
requirements for the authorization and supervision of AIFs. It also
provides a harmonized regulatory framework for the activities
within the EU of all AIFs.
A benefit of AIFs is the availability of marketing passporting
provisions introduced by the AIFM directive which substitutes the
existing EU member state’s national private placement regimes
when marketing AIFs to professional investors within the EU. This
directive has adopted a “one size fits all” approach under which a
single set of rules shall govern AIFs which are not covered by the
UCITS directive.
The local industry continues to enjoy the commitments of the local
government as well as the Malta Financial Services Authority which
strive to preserve a leading regulatory and legislative regime that is
attractive to foreign business while maintaining investor protection.
The implementation of the regulatory agenda continues unabated,
with much focus and discussion on depositary reform, remuneration
policies and practices, the future of money market funds, extension
of the AIFM directive passport to non-EU domiciled products and
managers, and the likely impact of MiFID II all being in the headlines.
The purpose of this practical guide is to provide, in a clear and
concise format, an overview of the AIF regime and how it fits within
the scope of the AIFM directive. I hope you find this guide useful.
Our asset management advisory team looks forward to your
feedback and in supporting you over the coming years so that we
may collectively realize the many opportunities offered by this
industry.
Ronald Attard
Country Managing Partner
Ernst & Young Limited
+356 2134 2134
[email protected]
| The Malta Alternative Investment Funds
In this report
01
02
03
Malta’s key success factors
2
Altrnative investment funds
4
Requirements of an AIF
6
Setting up and running an AIF
8
Forward 04 Investment restrictions
Professional Investor Funds
01
05
02
Setting up and
a PIF managed AIFs
06runningInternally
03
Investment07
Restrictions
Authorization
04
Key service providers
Requirements of a PIF
Key service providers
14
18
22
30
05
08
Salient features of AIFs
32
06
09
Marketing under the AIFM directive
34
Distribution of PIF products
10
AIF structures
38
PIF structures
42
Authorisation
Salient features of PIFs
07
08
11 Transparency and reporting obligations
Fund information
reporting obligations
12 andAdmissibility
for listing
10
09
13 Depositary
Taxation
12
14 Valuation under the AIFM directive
How can we help you?
13
15 Taxation
Glossary
14
16 How can we help you?
17 Glossary
18 Annex
Admissibility for Listing
11
46
48
54
56
58
60
63
Malta’s key success
factors
Business
friendly
legislative
framework
• Given Malta’s membership in the EU, legislation is reflective of EU legislation and
directives. Therefore, further to having a legislative structure that facilitates the
conduct of business in or from Malta, it provides foreign investors in Malta with the
assurance of the quality and consistency synonymous with the EU.
• As an EU member state, businesses in Malta can passport their services to all other
member states while the growing markets of North Africa and the Middle Eastern
countries bordering the southern coast of the Mediterranean basin are easily accessible.
• The government is continually striving to simplify bureaucracy and shorten
decision-making times.
Sound
regulatory
framework
and accessible
regulator
• Malta’s legislation is in line with EU law and built on best practices from other finance centres.
All financial services fall under one regulator, the Malta Financial Services Authority (MFSA).
Companies benefit from streamlined procedures, reduced bureaucracy and lower regulatory
fees.
• The MFSA is signatory to almost 30 memoranda of understanding with foreign regulators in
order to provide a smooth trading environment for the financial services sector. One of Malta’s
most appreciated advantages is the accessibility of the regulator, which establishes
constructive working relationships with companies investing in Malta.
• Malta consistently scores high on the stability stakes, and its regulatory framework is also
deemed to be particularly strong.
Highly skilled
labor force
• The Maltese workforce provides Malta with a competitive edge through a high-quality
labor force at competitive rates. A key attraction of the Maltese labor force is its
language skills and its advanced level of education.
• Financial services are an attractive career proposition for well-trained, highly motivated
graduates and support personnel. Training in this sector is provided through institutions
such as the University of Malta, Institute of Financial Services, the Malta Institute of
Accountants, the Malta Institute of Management and renowned European Institutions.
2 | The Malta Alternative Investment Funds
Cost competitive
environment
• Competitive labor costs, rental rates and general expenses compared to mainland Europe.
Companies in Malta can benefit from an extensive network of double taxation treaties as well
as from a number of business promotional incentives.
Infrastructure
• Malta has excellent communication links with regular flights to main international
airports as well as fully digitalized national telephone network. Malta boasts a truly
modern infrastructure with one of the highest broadband access rates in the EU.
• International connectivity is ensured by two satellite stations and four submarine
fiber-optic links to mainland Europe. A wide range of quality office and industrial space
with commercial office space in purposely built developments or stand-alone blocks
readily available at affordable prices.
Small, active
stock exchange
• Full member of International Organization of Securities Commissions (IOSCO) and the
World Federation of Exchanges (WFE); following Malta’s accession to the EU, the
Malta Stock Exchange, together with the exchanges of the other accession countries,
was granted the status of full member of the Federation of European Securities
Exchanges (FESE). Major sectors of the Maltese economy are represented on the lists of
the Malta Stock Exchange.
• Since being set up in 1992, almost €3b worth of capital has been raised on the market
for the private sector through the issue of corporate bonds and equity while a further
€15b worth of government of Malta stocks and treasury bills have been issued and fully
taken up. Investor base of over 75,000 individual investors, which is a significant
number given Malta’s economic size and population. The focus of the Malta Stock
Exchange is mostly domestic.
The Malta Alternative Investment Funds | 3
01 Alternative
investment funds
1.1
The Alternative investment funds
regime in brief
An Alternative Investment Fund (AIF) is a
pan-European regulated branded investment fund for
professional and sophisticated investors.
Some key characteristics of the AIF regime:
• A regulated EU structure under the Alternative
Investment Fund Managers directive
(AIFM directive)1
• Suitable for all investment strategies — including
traditional and alternative — and all asset classes
• Five different classifications — retail, experienced,
professional, qualifying and extraordinary —
depending on the proposed target investors
(see Section 3.3)
• Light diversification and leverage rules depending
on target investor (see Section 4.1)
• Single fund or multi-fund structure, combining
different investment strategies or asset classes in
different sub-funds
• Possibility of internally managed (self-managed)
AIFs (see Section 6)
• Availability of marketing passporting of AIFs to all
EU member states (see Section 9)
1.2
An investment fund adopted to any
type of investment fund project
AIFs include:
•
•
•
•
Hedge funds
Real estate funds
Loan funds (see Section 10.4)
Thematic funds such as AIF:
• Investing in specific segments, such as
environment
• Investing in collectibles, such as luxury
goods
• Investing in intangible assets, such as patents
• Meeting specific criteria, such as responsible
investment criteria
• Multiple-asset class AIF: AIF with multiple of
sub-funds or compartments investing in different
asset classes, sometimes with interlinked sub-funds
or compartments (see Section 3.2)
• Funds of AIF
EY supports asset managers and investment
fund houses through the choice of investment
fund vehicle, the analysis of target markets,
the definition of an efficient operating model
and distribution strategy, and the selection of
service providers.
1 Directive 2011/61/EC of the European parliament and of the council of 8 June 2011 on Alternative Investment Fund Managers and amending directive 2003/41/EC
and 2009/65/EC and regulations (EC) No 1060/2009 and (EU) No 1095/2010.
4 | The Malta Alternative Investment Funds
The Malta Alternative Investment Funds | 5
02 Requirements
of an AIF
2.1
Investment services act
The Maltese Investment Services Act (the Act)
provides the statutory basis for regulating investment
funds constituted in or from Malta.2
AIFs are a special class of investment funds which
fall within the provisions of the Act.3 The primary
objective of an AIF must be the collective investment
of capital acquired by means of an offer of units for
subscription, sale or exchange and which has the
following characteristics:
• The investment fund or arrangement operates
according to the principle of risk spreading
and either
• The contributions of the participants and the
profits or income out of which payments are
to be made to them are pooled
Or
• At the request of the holders, units are or are
to be re-purchased or redeemed out of the
assets of the investment fund or arrangement,
continuously or in blocks at short intervals
Or
• Units are, or have been, or will be issued
continuously or in blocks at short intervals
An AIF that is not sold to retail investors may not have
the characteristic listed in paragraph (a) and shall only
be deemed to be an investment fund if the AIF, in
specific circumstances as established by regulations
under the Act, is exempted from such requirement and
satisfies any other conditions that may be prescribed.
The Act also classifies AIFs as investment funds which
raises capital from a number of investors, with a view
to investing it in line with a pre-defined investment
policy for the benefit of those investors, and which
does not qualify as a UCITS in terms of the UCITS
directive.4
Every licence for an AIF is subject to standard licence
conditions which are set in full in the investment
services rules for Alternative Investment Funds.
2.2
Implications under the AIFM
directive
The AIFM directive is the outcome of the recent
financial difficulties experienced which have been
viewed as being amplified by the activities of
Alternative Investment Fund Managers (AIFMs). It
aims to establish common requirements for the
authorization and supervision of AIFMs and AIFs. It
also provides a harmonized regulatory framework for
the activities within the EU of all AIFs including AIFMs
that are not registered in any EU or EEA member state
(non-EU AIFMs).
Its regulations have been transposed in the Act and
constituent rules and regulations, and provide a
harmonized regulatory framework among the EU
member states for the regulation and supervision of
investment funds (excluding UCITS). It specifies the
core features of such type of investment funds and
imposes stringent regulation on AIFs and AIFMs such
as remuneration provisions and the requirement to
appoint additional service providers (e.g., a depositary)
however it has also introduced marketing passporting
provisions for AIFMs to market AIFs to professional
investors within the EU jurisdiction, which will
eventually replace the current national private
placement regime. This directive has adopted a “one
size fits all” approach under which a single set of rules
shall govern AIFMs of AIFs which are not covered by
the UCITS directive.
2 Investment Services Act, 1994
3 An investment fund, whether of the unit trust or open-ended investment company variety, falling within the scope of and authorised in terms of the UCITS directive.
4 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS) (recast) and includes any implementing measures that have been or may be issued thereunder.
6 | The Malta Alternative Investment Funds
In terms of the AIFM directive, the following
undertakings shall not be considered as AIFs:
• A holding company
• An institution for occupational retirement
provision which is covered by directive
2003/41/EC
• Employee participation schemes or employee
savings schemes
• Securitization special purpose vehicles (SPV)
• Insurance contracts and joint ventures
• Supranational institutions
• National central banks
• National, regional and local governments and
bodies or institutions which manage funds
supporting social security and pension
systems
2.3
The investment services rules for
AIFs
Every license for an AIF is subject to standard license
conditions which are set out in full in the investment
services rules for Alternative Investment Funds issued
by the MFSA. The investment services rules
(the rules) describe the basic principles to which
license holders must adhere in the provision of
investment services or in the operation of an
investment fund. In certain circumstances, the
standard requirements can be tailored to meet specific
circumstances. The rules also include the necessary
forms to be completed by applicants for an investment
fund license.
The Malta Alternative Investment Funds | 7
03 Setting up and
running an AIF
3.1
AIFs structures
An AIF can be structured as an investment company
(SICAV or INVCO), a contractual fund, unit trust or as
a limited partnership.
3.1.1
Investment company
AIFs may be set up as limited liability companies and
may be established as open-ended investment
companies (SICAVs) or closed-ended investment
companies (INVCOs).
A SICAV may be formed as a public or private
company with variable share capital and is governed
by the Companies Act.5, 6 A private company is
restricted to the extent to which it can transfer shares
and is prohibited from issuing any invitation to the
public to subscribe to any of the shares or debentures
of the company whilst a public company may offer its
shares or debentures to the public. SICAVs allow for
the introduction of additional investors without having
to wait for the liquidation of an existing investor. In an
open-ended AIF, the value of a share reflects the
Net Asset Value of the AIF. SICAVs can be formed as
Incorporated Cell Companies, in terms of the
Companies Act having each incorporated cell
within an incorporated cell company as a limited
liability company endowed with its own legal
personality.7
INVCOs are governed by the Companies Act and are
public companies with a fixed share capital and its
business is restricted to the investment of their funds
mainly in securities, or operating as a retirement fund.8
The activities of an INVCO are further restricted by
the following requirements: the company’s holdings in
any other company not being an investment company
with fixed share capital, does not exceed 15% by value
of its investments; the distribution of the company’s
capital profits is prohibited by its memorandum and
5 Investment Companies with Variable Share Capital
6 Companies Act (Chapter 386 of the Laws of Malta)
7 Companies Act (SICAV Incorporated Cell Companies) Regulations, 2010
8 Investment Companies with Fixed Share Capital
8 | The Malta Alternative Investment Funds
articles of association; no more than 15% of the
income derived from securities are retained by the
company.
SICAVs and INVCOs can operate as a multi-fund
structure, whereby the share capital may be divided
into different classes of shares, with each class of
shares representing a distinct sub-fund of the AIF.
3.1.2
Contractual funds
Contractual funds are governed by the Act established
by means of a deed of constitution entered into for
such purpose by the manager and the custodian of
such an AIF. They are not deemed to be a separate
legal entity since they are established through a
contractual obligation and can be licensed as a
multi-fund or multi-class AIF. A contractual fund may
set up one or more special purpose vehicle, which
would be a company and through which the AIF may
gain access to double taxation treaties.
EY supports asset managers and investment
fund houses through the creation of an
investment fund structure that meets the
regulatory requirements and tax
specifications.
3.1.3
Unit trusts
AIFs can also be constituted by a trust deed between a
management company and a trustee. They are
governed by the Trusts and Trustees Act which Act
enables both residents and non-residents to set up
various trust structures such as constructive trusts,
discretionary trusts, fixed interests trust and purpose
trust.9 Trustees operating in Malta must be approved
by the MFSA whilst trusts established in foreign
jurisdictions may be recognized in Malta and it is
therefore possible to set up an investment fund as a
foreign law trust.
3.1.4
Limited partnerships
Limited Partnerships benefit from a similar legislative
framework to the one offered to SICAVs and may be
constituted as multi-class partnerships or as multi-fund
partnerships and the capital of the partnership can be
divided into shares. Partnerships must have a
registered office in Malta where they keep the personal
information of all limited partners. In addition, a
limited partnership requires general partners who are
fully liable and both partners can be limited liability
companies formed in any jurisdiction. Limited
partnerships are governed by the Companies Act.
3.2
Multi-fund UCITS and unit classes
Multi-fund AIFs (otherwise known as umbrella funds)
are single legal entities comprising two or more
sub-funds or compartments, each with different
features such as different investment policies and
objectives, different asset class investments and
different target clients.
objectives and restrictions specific to each sub-fund.
The multi-fund AIF may also elect, subject to relevant
disclosure in its constitutional documents, to have the
assets and liabilities of each sub-fund comprised in the
AIF treated for all intents and purposes of law as a
patrimony separate from the assets and liabilities of
each other sub-fund of the AIF.
Investors may purchase shares or units in sub-funds
which have different investment policies, objectives
and restrictions, segregated assets and accounting
records. Investors may, if permitted by the
constitutional document or offering document, “switch”
all or part of their investment from one compartment
to another, in principle without incurring significant
charges. Promoters may consequently retain in the
same AIF those investors who wish to change their
investment strategy.
Multiple share or unit classes may be created within an
AIF or, in the case of a multi-fund AIF, within a
sub-fund.
While the investment objectives, policies and
restrictions are defined at the level of the AIF or the
sub-fund, share or unit classes permit the
implementation of features, generally customized to
one or more specific needs or preferences, such as a
specific fee structure, currency of denomination,
hedging policy, dividend policy, investor type or
country of distribution.
Identification numbers (such as International Security
Identification Number (ISIN)) are attributed at the
level of the share or unit class.
The graphic design featured on the following page
illustrates the flexibility of a multi-fund AIF.
Multi-fund AIFs may be created provided the
constitutional documents expressly permit it and the
offering documentation specifies the investment policy,
9 Trust and Trustees Act (Chapter 331 of the Laws of Malta)
The Malta Alternative Investment Funds | 9
Figure 1: Schematic of a possible multi-fund, multiple share or unit class structure10
AIF
Multi-fund AIF
Sub-funds, each with
specific
features
US equity
Share or unit
classes, each with
specific features
3.3
UK equity
Fee structure
(combination of
entry, exit and
ongoing)
Europe equity
Europe bonds
Currency (e.g.,€,
US$, JPY) or hedged
Dividend policy
(distribution or
capitalization)
Euro
long/short
Investor type (e.g.,
retail, professional
etc.)
Eligibility of investors
Investors in AIFs must satisfy one of the following conditions depending on the type of investor being targeted by the
AIF:
Type of AIF
Conditions
Retail investor
• Person not classified as a professional investor
Professional investor
• Person having the experience, knowledge and expertise to make own investment decisions and properly
asses the risks involved
• Entities authorised or regulated to operate in the financial markets
• Large undertakings satisfying at least two of the following criteria: balance sheet total €20m;
net turnover €40m; own funds €20m
• National and regional governments, public bodies that manage public debts, Central Banks, international
and supranational institutions (e.g., World Bank)
Experienced investor
• Person having at least one year of relevant work experience in a professional position in the financial
sector or a person who has been active in such types of investments
• Reasonable experience in the acquisition or disposal of funds or instruments with similar risk profiles to
that of the proposed AIF
• Having carried out investment transactions of a significant size at a certain frequency
• Any other appropriate justification
• Other institutions whose main activity is to invest in financial instruments including entities involved in
securitization of assets or financing transactions
10 This graphic is designed to illustrate a multi-fund compartment, multiple shares or unit class structure and it is not designed to represent a typical structure.
10 | The Malta Alternative Investment Funds
Type of AIF
Conditions
Qualifying investor
• Person (or entity) must have net assets in excess of €750,000. If the AIF is established as a trust,
this condition applies to the net value of the trust’s assets. Individuals must meet this threshold either on
their own, or jointly with their spouse. This is a mandatory condition
• Reasonable experience in investment decisions on funds with a similar risk profile and in instruments of
the proposed AIF
• A senior employee or director of service providers to the AIF
• A body corporate or partnership wholly owned by persons or entities satisfying any of these criteria that
is used as an investment vehicle by such persons or entities
• An entity with at least €3.75m under discretionary management investing on its own account
• The investor is a AIF promoted to qualifying or extraordinary investors
Extraordinary investor
• Person (or entity) must have net assets in excess of €7.5m. If the AIF is established as a trust,
this condition applies to the net value of the trust’s assets. Individuals must meet this threshold either on
their own, or jointly with their spouse. This is a mandatory condition
• The investor is a AIF promoted to extraordinary investors
• A senior employee or director of service providers to the AIF
• A body corporate or partnership wholly owned by persons or entities satisfying any of these criteria that
is used as an investment vehicle by such persons or entity
3.4
Regulatory characteristics and requirements
The following table presents a summary of other regulatory characteristics and requirements of AIFs
AIFs targeting
experienced investors
AIFs targeting
qualifying investors
AIFs targeting
extraordinary investors
Regulator
MFSA
MFSA
MFSA
Authorization/ licensing procedure
Prior to setup
Prior to setup
Prior to setup
Structures available
• Investment companies
• Limited partnerships
• Unit trust
• Contractual fund
(Refer to Section 3.1)
• Investment companies
• Limited partnerships
• Unit trust
• Contractual fund
(Refer to Section 3.1)
• Investment companies
• Limited partnerships
• Unit trust
• Contractual fund
(Refer to Section 3.1)
Eligible investors
Refer to Section 3.3
Refer to Section 3.3
Refer to Section 3.3
Maximum number of
shareholders
No limit
No limit
No limit
Minimum number of
shareholders
No minimum
No minimum
No minimum
Minimum investment
€10,000/ $10,000 or
equivalent
€75,000/ $75,000 or
equivalent
€750,000/ $750,000 or
equivalent
The Malta Alternative Investment Funds | 11
AIFs targeting
experienced investors
AIFs targeting
qualifying investors
AIFs targeting
extraordinary investors
Use of sub-funds
Yes
Yes
Yes
Multi share classes
Yes
Yes
Yes
Investment restrictions
Specific investment
restriction (refer to Section 4.1)
No restrictions – subject to
general diversification
requirements (refer to
Section 4.1)
No restrictions – subject to
general diversification
requirements (refer to
Section 4.1)
Leverage restrictions
Up to 100%
No
No
Cross Sub-Investments
No
Yes
• Allowed to invest up to
50% of its assets into
any sub-fund within
the same AIF
• The target sub-fund/s
may not themselves
invest in the sub-fund
which is to invest in
the target sub-fund/s
• When applicable avoid
duplication of fees
Yes
• Allowed to invest up to
50% of its assets into
any sub-fund within
the same AIF
• The target sub-fund/s
may not themselves
invest in the sub-fund
which is to invest in
the target sub-fund/s
• When applicable avoid
duplication of fees
Fees/expenses including
performance and advisory
fees
No restrictions given that
they are duly disclosed in
offering document
No restrictions given that
they are duly disclosed in
offering document
No restrictions given that
they are duly disclosed in
offering document
Transferability of shares or
units
• Generally freely
transferable
• Subject to informed
investor qualifications
• Generally freely
transferable
• Subject to informed
investor qualifications
• Generally freely
transferable
• Subject to informed
investor qualifications
Information to investors
Offering documentation and
financial statements
Offering documentation and
financial statements
Offering documentation and
financial statements
Regulator due diligence
checks
• Directors
• Shareholders
• Service Providers
• Directors
• Shareholders
• Service Providers
• Directors
• Shareholders
• Service Providers
Listing possible
Yes
Yes
Yes
NAV calculation
NAV required
NAV required
NAV required
Subscription and redemption
price
Subscription and
redemption conditions laid
down in the constitutional
documents
Subscription and
redemption conditions laid
down in the constitutional
documents
Subscription and
redemption conditions laid
down in the constitutional
documents
12 | The Malta Alternative Investment Funds
The Malta Alternative Investment Funds | 13
04 Investment
restrictions
4.1
Investment restrictions
The restrictions are to be complied with by each
sub-fund in a multi-fund AIF structure.
The MFSA’s rules for AIFs provides relevant
information and clarifications on the investment
restrictions that must be adhered to by AIFs
depending on the type of investor being targeted.
The following is a summary of the investment
restrictions applicable to AIFs targeting the different
types of investor:
Retail investors
Instrument
Restriction
Ancillary liquid cash
• The AIF may hold ancillary liquid assets irrespective of its investment objective and policy
Securities
• Up to 10% of its assets in securities which are not traded in or dealt on a market which:
the depositary and the AIFM have agreed upon; is listed in the AIF’s offering documentation;
is regulated, operates, recognized and open to public; has adequate liquidity and adequate
transmission of income and capital and is not subject to MFSA restrictions
• Up to 10% of its assets in securities issued by the same body. Derogation may be obtained to
raise the limit to 35% or 100% subject to certain conditions
• Up to 10% of any class of security issued by a single issuer
• Up to 5% of the value of the AIF in nil paid or partly paid shares and subscribe for placing or
underwriting provided certain restrictions are adhered to
• The AIF is not to acquire sufficient instruments that give it the right to exercise control over
20% or more of the share capital or votes of a company or to enable it to exercise significant
influence over the management of the issuer
Deposits with credit institutions
• Up to 10% of the assets kept on deposit with any one body. This may be increased to 30% in
case of money deposited with an EU credit institution or any other credit institution approved
by the MFSA. Derogation may be obtained to raise the limit to 35% subject to certain conditions
EY supports asset managers and investment
houses through the structure and choice of
the optimum investment fund structure
coherent with the relevant investment
objectives, policies and restrictions
requirements.
14 | The Malta Alternative Investment Funds
Retail investors
Instrument
Restriction
Units in other investment funds
• May invest up to 20% of assets in any single investment fund
• The AIFM shall waive all charges which it is entitled to charge for its own account in relation
to subscription and redemption of units in the circumstances were the AIF invests in other
investment funds managed by the same AIFM
• Any commission received by the AIFM by virtue of an investment in Units of other investment
funds on behalf of the AIF shall be paid into the AIF
Financial derivative instruments
• The AIF shall only hold FDIs or OTC-derivative instruments for the purposes of efficient
portfolio management
• Maximum potential loss to one counterparty in an OTC-derivative transaction is limited to
5% of the value of the AIF. This can be increased to 10% in case of the counterparty being a
credit institution. Derogation may be obtained to raise the limit to 35% subject to certain
conditions
• Netting of the mark-to-market value of the OTC-derivative positions with the same
counterparty is allowed only if the AIF has a contractual netting agreement with the
counterparty
• Derivatives performed on an exchange have a clearing house shall be deemed to be free of
counterparty risk
• The AIF is to hold the underlying instrument as cover in case where it holds an FDI which
requires cash or physical settlement on maturity or exercise
Uncovered sales
• The AIF may not carry out uncovered sale of securities or other financial instruments
Borrowing
• The AIF may borrow up to 10% of its assets on a temporary basis subject to risk exposure
not exceeding 110% of its assets
Others
• The AIF cannot enter into cross sub-fund investments (if case the AIF is established as a
multi-fund)
The Malta Alternative Investment Funds | 15
Experienced investor
Instrument
Restriction
Ancillary cash
• The AIF may hold ancillary liquid assets irrespective of its investment objective and policy
Securities
• Up to 20% of assets in securities issued by the same body. Limit may be increased to 35%/
100% in the case where the money market instrument is issued or guaranteed by authorities
in OECD or EU/EEA member states/EEA credit institutions
• Limit may be increased to 35% in case of transferable securities traded or dealt on a
regulated market
Money market instrument
• Up to 30% of assets in money market instruments issued by the same body. Limit may
increase to 35%/ 100% in case where the money market instrument is issued or guaranteed
by authorities in OECD or EU/EEA member states/ EEA credit institutions
Deposits
• Up to 35% of assets in deposits held with a single body
Units in investment funds
• No restriction applicable with respect to investment in a single investment funds provided it
qualifies as a UCITS or other open-ended investment funds subject to the equivalent risk
spreading requirements applicable to the AIF
• Up to 30% of assets in any single investment not qualifying as UCITS or as other investment
funds defined in the preceding point
• The AIF is to invest in at least five hedge funds in case the AIF is a fund of hedge funds
Financial derivative instruments
• Exposure to a single counterparty limited to 20% of total assets; such exposure may be
reduced if acceptable collateral is provided by the relevant counterparty
• Netting of the mark-to-market value of the OTC-derivative positions with the same
counterparty is allowed only if the AIF has a contractual netting agreement with the
counterparty
Feeder fund
• The Master AIF shall satisfy the leverage restrictions of the AIF in case it is setup as a
Feeder Fund
Immovable property
• Up to 25% of assets – directly or indirectly (through an SPV) – in any one single immovable
property
• The AIF is to invest in at least five different properties in case it invest solely in immovable
property
• The AIF may invest up to 100% of total assets in any single property fund or SPV provided
such fund or SPV complies with the investment, borrowing and leverage conditions
applicable to AIFs targeting Experienced investors
Repurchase/reverse repurchase and stock
lending or borrowing arrangements
• Allowed only if considered to be appropriate and in the best interest of investors and entails
and acceptable levels of risk and investment is made in accordance with good market
practice and involves the provision of adequate collateral
Leverage
• Direct borrowing for investment purpose/ leverage via the use of derivatives is limited to
100% of the value of the AIF
General
• Aggregate maximum exposure to a single issuer/counterparty (through securities, money
market instruments, deposits and OTC-derivatives) is limited to 40% of total assets
• The AIF cannot enter into cross sub-fund investments (in case the AIF is established as a
multi-fund)
16 | The Malta Alternative Investment Funds
Professional investor/qualifying investor/extraordinary investor
Instrument
Restriction
Cross subfund investment
• The AIF may invest in units of one or more sub-funds within the same AIF subject to this
being permitted in the constitutional documents and the Offering Memorandum of the
said AIF
• A sub-fund is allowed to invest up to 50% of its assets in another sub-fund within the same
AIF
• The target sub-fund may not itself invest in the sub-fund which is to invest in the target
sub-fund
• Where the AIFM of the sub-fund and the AIFM of the target sub-fund is the same (or in case
affiliated), only one set of management (excl. performance fees), subscription and
redemption fees shall be applicable
The Malta Alternative Investment Funds | 17
05 Key service
providers
5.1
Typical organization of an AIF
This section outlines the typical organization of an
AIF, summarizes the roles of the main service
providers and outlines the factors impacting the choice
An AIF which has appointed an external asset
manager
of organizational model. As part of the formation
procedures of an AIF, several service providers must
be appointed. The following diagrams show illustrative
examples (however other models may be possible) of
the organization of an AIF.
An AIF which has not appointed an external asset
manager11
Investment fund
(board of directors)
Valuer
Asset manager
Valuer
Internally managed
AIF
board of directors
Prime broker
Depositary
Fund administrator,
registrar, transfer
agent
Investment committee
Auditor
Prime broker
Fund administrator,
resgistrar, transfer
agent
Depositary
Portfolio managers
or
investment company
Third-party
investment manager
Auditor
Investment advisors
Investment advisors
EY supports asset managers and investment
fund houses with the selection of service
providers having consideration to the target
assets and organizational model of the
investment fund.
11 Kindly refer to Section 6.0 for detailed information on internally managed/ self-managed AIFs.
18 | The Malta Alternative Investment Funds
The principle duties of the service providers are as
follows:
5.2
Asset manager
An AIF may only appoint an AIFM, it terms of the AIFM
directive, as its asset manager to be responsible for
the management and investment of its assets. The
AIFM is a delegate of the AIF and must be duly
authorised to provide such services.
Management services of an AIFM include, in general,
investment management, administration and
marketing. In practice, many AIFMs delegate some of
these functions. It shall however remain responsible
for overseeing and supervising all delegated functions.
An AIFM may delegate, in part or full, the investment
management function to a third-party investment
company provided it is authorised to undertake such
activity (e.g., an EU MiFID asset manager). The
administrative function is ordinarily also delegated to
an Administrator (see section 5.5)
have sufficient financial resources and liquidity at its
disposal to enable it to conduct its business.
5.4
Depositary
The AIFM must appoint a single depositary for each
AIF it manages. The depositary shall either be:
• A licensed EU credit institution
• A licensed EU MiFID firm authorised to provide the
services of safe-keeping of assets
Or
• Any other entity permitted to act as depositary
pursuant to UCITS directive
The depositary need not to be domiciled in the
jurisdiction of the AIF, at least until 22 July 2017.12
It must be independent from the asset manager and
shall not be engaged as the valuer. The depositary
may also act as prime broker, acting as counterparty
to the AIF, subject to certain conditions being met.
The AIFM need not be domiciled and regulated where
the AIF is domiciled. Not all AIFs are required to
appoint an external asset manager (see Section 6).
While safekeeping of assets in which the AIF invests is
the core function of the depositary, this party is also
responsible for overseeing the AIFM compliance with
the AIF’s constitutional documents and rules and to
monitor the AIF’s cash flows.
5.3
The safe-keeping task is the only task that a depositary
may delegate.
Investment advisor
The investment advisor advices the AIF’s asset
manager respect of transactions relating to financial
instruments. The investment advisor will not have any
discretion with respect to the investment and
re-investment of the assets of the AIF.
AIFs ordinarily do not appoint an investment advisor.
Furthermore, the investment advisor need not be
based in the same jurisdiction as the AIF, but shall
12 MFSA negotiated the derogation to Article 61(5) of the AIFM directive
The Malta Alternative Investment Funds | 19
5.5
Administrator
5.7
Valuer
Administrative services in relation to an AIF may be
carried out by an administrator. The administrator’s
role ordinarily covers, amongst other things:
The AIFM or the AIF, if internally managed, shall be
responsible for the valuation of the assets of the AIF
it manages.
•
•
•
•
•
•
•
•
•
•
Such valuation task may either be performed by:
Liaison with shareholders
Calculation of the net asset value
Reconciliations
Pricing the investment portfolio
Payment of bills
Preparation of financial statements
Fund accounting
Performance reporting
Compliance reporting
Preparation of contract notes
The administrator ordinarily also provides registrar and
transfer agency services.
The role of the administrator may be carried out either
by the AIFM or alternatively may be delegated to a
separate entity which provides fund administrative
services to investment funds.
5.6
Prime broker and counterparties
The AIF or the AIFM on behalf of the AIF may appoint
one or more prime brokers or counterparties. Before
entering into relevant agreement with a prime broker
or counterparty, the AIF or the AIFM on behalf of the
AIF shall exercise due skill, care and diligence on an
on-going basis.
The depositary may be appointed as prime broker
provided that it must separate the custody activities
from its brokerage activities.
20 | The Malta Alternative Investment Funds
• An external valuer being independent from the AIFM
or AIF and any other persons with close links to the
AIF or the AIFM
Or
• The AIFM itself provided that safeguards are
implemented by the AIFM to ensure that the task is
independent from the portfolio management and
the remuneration policy
5.7
Auditor
The AIF shall appoint an auditor approved by the
MFSA. The AIF shall obtain a signed letter of
engagement from its auditor outlining the extent of
the auditor’s responsibilities and the terms of
appointment.
The Malta Alternative Investment Funds | 21
06 Internally
managed AIFs
6.1
Introduction
An AIF may opt not to appoint an AIFM and thus the
AIF will be carrying out internally the investment
management function. In this regard, the AIF shall at
least perform the portfolio management and risk
management functions.
For the purpose of this section the term “AIF” shall be
understood to refer to “internally managed AIF”. The
term “investment management” shall refer to the
“portfolio management and risk management
functions”.
6.1
As such, the AIF may consider either of the following
options:
• To integrate a fully fledged investment management
function
Or
• To delegate either the investment management or
risk management function to a third-party while
retaining the other function
Operational arrangements
An AIF is to organise and control its affairs in a
responsible manner and is to have adequate
operational, administrative and financial procedures
and controls to ensure compliance with all regulatory
requirements.
The AIF would also need to have adequate and
appropriate human and technical resources that are
necessary for the proper management and to
effectively perform its activities.
6.1.1
Investment management
The AIF’s board of directors would be responsible for
the investment management function. In undertaking
its activities, the AIF is to functionally separate the
functions of portfolio management and risk
management. In that persons ordinarily engaged in
either of the said functions are not to be supervised
by those responsible for the other operating units nor
are they to be engaged in other operating activities.
Compensation to such persons should also be related
solely to the performance of the function involved in.
22 | The Malta Alternative Investment Funds
EY supports asset managers and investment
fund houses with the organizational modeling,
internal structuring and policies as well as any
delegation arrangements for internally
managed investment funds.
Model 1: Integrated investment management function under this model, the AIF carries out both functions
internally.
Board of directors
IM report
Investment
committee
Responsible for the portfolio management and risk management
function
RM report
Risk manager
Portfolio manager
Investment
management
function
Risk management
function
Risk support
(e.g., risk management service providers, external
data providers)
Investment committee members/portfolio manager/risk
managers are subject to the competency assessment of the
MFSA; can be involved in the other function or member to the
board of directors subject to principle of proportionality
Day-to-day portfolio management/ risk monitoring and
preparation of the portfolio management/risk monitoring report
External parties providing support to the risk management
function
How is the principle of “proportionality” applied?
The “proportionality” principle may be invoked in
relation to the application of certain provisions.13 In
general this means that the MFSA shall take into
account the nature, scale and complexity of the
activities of the AIF when considering whether the
AIF, despite any derogation, is able to comply with
certain requirements.
13 We have, in general, indicated throughout the technical guide where the proportionality principle applies
The Malta Alternative Investment Funds | 23
Model 2: Delegating of investment management function and retaining of risk management function
In this model, the AIF undertakes the risk management function through its own staff and delegates the
portfolio management to a third-party, for example an EU-based MiFID compliant investment company.
AIF
Board of directors
EU MiFID entities
or authorized delegate
IM delegated
RM report
Portfolio Manager
Risk management function
RM reports
Investment management team
IM reports
Risk support
(e.g., risk management service providers, external
data providers)
The AIF is to establish procedures for the effective transfer of information to and from the delegate in line with the
delegation provisions. External parties may also be appointed to provide support to the AIF risk management
function. The board would still be responsible for both portfolio management and risk management functions. A
variant to this model would be for the delegation of the risk management function instead of the investment
management function.
24 | The Malta Alternative Investment Funds
6.1.1.1 Portfolio management
The roles and duties pertaining to the portfolio
management function are as follows:
Responsible for the overall management of the assets of the AIF
Board of directors
The investment committee shall:
• Monitor and review the investment policy of the AIF
• Establish and review guidelines for the investment by the AIF
• Issue rules and asset selection criteria
• Setting up portfolio structure and allocation parameters
• Make recommendations to the board of directors
Investment
committee
Portfolio
manager
Or
EU MiFID
investment
company
6.1.1.2 Risk management
An AIF must also operate within a robust risk
management framework to adequately manage risk
along its investment objectives and strategies. The
AIF is to establish and maintain a permanent risk
management function which proceedings are to be
governed by a dedicated risk management policy. The
risk management function shall be functionally and
hierarchically separated from operating units including
the portfolio management, or, at least, specific
safeguards against conflicts of interest shall be
implemented to allow an independent performance of
risk management activities.
• Delegated the day-to-day portfolio management
• Undertake the day-to-day portfolio management in line with
the investment guidelines set by the investment committee
and in accordance with the AIFs offering documents
When is the risk management function “functionally
and hierarchically separated”?
• Individuals engaged in the risk management function
are not supervised by those responsible for the
operating units nor involved in such other units of
the AIF.
• Compensation of individuals involved the risk
management function is related solely to such
function.
• The separation is ensured up to the board of
directors of the AIF.
The MFSA shall adopt a risk-metric approach
proportional to the AIF’s size, internal organization
and complexity of its activities in case the risk
management function is not hierarchically and
functionally independent from other units.
The Malta Alternative Investment Funds | 25
The AIF may also elect to contractually delegate the
risk management function to third parties (not being
the depositary or a delegate of the depositary) for the
purpose of a more efficient conduct of business
provided that the AIF is able to demonstrate that: the
third-party has the professional ability and capacity to
perform such duties, is duly authorised or registered
to perform such duties and its appointment is
acceptable to the MFSA.
In doing so, the AIF must establish methods for
ongoing assessment of the standard of performance
of the third-party.
6.1.1.3 Delegation
The Portfolio manager(s) may either be individual(s) or
a licensed manager which is authorized or registered
to perform such function and accordingly it may not
necessarily be authorized as an AIFM (e.g., an EU MiFID
investment company) and acceptable to the MFSA.
The AIF may confer the portfolio management
function to managers licensed in third countries
provided that a cooperation agreement is in place
between the MFSA and the supervisory authorities of
the manager’s third country. Portfolio management
activities may not be delegated to the depositary.
6.1.2
• An external valuer subject to mandatory
professional registration recognized by law or
legal or regulatory provisions or rules of
professional conduct, independent from the
AIF and any other persons with close links to
the AIF.
The depositary shall not be appointed as external
valuer unless it has functionally and hierarchically
separated the performance of its depositary functions
from its tasks as external valuer and the potential
conflicts of interest are properly identified, managed,
monitored and disclosed to the investors of the AIF.
External valuers must provide professional guarantees.
The professional guarantees are to contain evidence
of the external valuer’s capabilities in performing the
valuation task, including evidence of:
• Sufficient personal and technical resources in
respect of the AIF’s investment strategy and
specific asset
• Adequate procedures safeguarding proper
and independent valuation
• Adequate knowledge and understanding in
respect of the AIF’s investment strategy and
specific asset
Valuation
AIFs must have in place appropriate valuation
procedures to ensure the proper valuation of its
assets. The valuation function must be either
performed by:
• The AIF itself subject to the task being
independent from the portfolio management
and safeguards are in place to mitigate any
conflicts of interest or undue influence upon
the employees performing such task, being
independent from the remuneration policy.
26 | The Malta Alternative Investment Funds
EY supports asset managers and investment
fund houses in defining or reviewing the risk
management process and the formation of
internal policies and procedures.
In case that an external valuer is appointed to value
only parts of the AIF’s portfolio, the external valuer is
required to provide resources, procedures, knowledge
and understanding which are sufficient in respect of
such asset.
An AIFM itself or a delegated third-party may carry
out the calculation of the net asset value and such
activity shall not constitute as valuation of
underlying assets provided that the AIFM or
third-party is not providing valuations for individual
assets, including those requiring subjective
judgement, but simply incorporates into the
calculation process the valuation of assets obtained
from the valuer
6.2
Remuneration
6.2.1
Principles or remuneration
An AIF must adopt a remuneration policy which
governs all of the payments made by it to certain
members of its staff in exchange for the services
rendered, which activities have a material impact on
its risk profile. It should broadly promote sound and
effective risk management and does not encourage
risk taking which is inconsistent with its risk profile.
The policy is to be reviewed by the AIF’s board of
directors on a periodic basis, at least annually.
The Annex II principles
•
•
•
•
•
•
•
•
•
•
The remuneration policy must include measures to avoid conflicts of interest.
The management body of the AIF must periodically review the remuneration policy and is responsible for its implementation.
The implementation of the remuneration policy must be subject to an independent review at least annually.
Guaranteed bonuses should be “exceptional” and may only occur in the context of hiring new staff for the first year of service.
Payments related to the early termination of a contract must reflect performance over time and not reward failure.
The fixed and variable components of total remuneration should be appropriately balanced with the fixed component to represent a sufficiently high
proportion of the total remuneration.
At least 50% of any variable remuneration must consist of non-cash variable payments such as units or shares in the AIF, which will be subject to an
appropriate retention policy designed to align incentives with the interests of the AIF and its investors.
At least 40% of variable remuneration should be deferred over a period which is appropriate in view of the life cycle and redemption policy of the AIF.
The period shall be at least 3 to 5 years unless the life cycle of the AIF is shorter.
The variable remuneration must be paid or vest only if it is sustainable according to the financial situation of the AIF as a whole. The total variable
remuneration must generally be “considerably contracted” where subdued or negative financial performance of the AIF occurs, including through
reducing payouts of amounts previously earned (including by malus or clawback arrangements).
AIFs that are significant in terms of their size, their internal organization and the nature, the scope and the complexity of their activities must
establish a remuneration committee. The members of which are not to perform any executive functions in the AIF.
The Malta Alternative Investment Funds | 27
6.2.2
Applicability of remuneration provisions
In general, an AIF shall have remuneration policies
and practices for those categories of staff — referred
to as “identified staff” — whose professional activities
have a material impact on its risk profile.14 These
Identified Staff shall be subject to the remuneration
provisions unless the AIF is able to demonstrate that
such staff, while it may be classified as “Identified
Staff”, have no material impact on the AIF’s risk profile
in undertaking their duties.
For this purpose, remuneration shall consist of:
• All forms of payments or benefits paid by the
AIF, including carried interest
• Any transfer of units or shares of the AIF,
in exchange for professional services
rendered by the AIF’s identified staff
The AIF is to consider all of the three factors
cumulatively. By way of example, an AIF which is
significant only with respect to one or two criteria may
still be able to derogate from the requirement to either
establish the remuneration committee or from
applying the requirements related to the Pay-Out
process. The MFSA’s guidelines further provide that
an AIF may not apply lower thresholds based on
proportionality and the specific numerical criteria may
only be disapplied in their entirety that where it
passes the proportionality test. For example, the
specific numerical criteria set out in Annex II principles
(e.g., the minimum portion of 40% to 60% of variable
remuneration that should be deferred), if disapplied,
may only be disapplied in their entirety otherwise it
must be complied with in full without variation.
AIFs may also set up a remuneration committee that
would be responsible for the implementation and
adaptation of the remuneration policy and, if
established, must operate independently and at least
be composed by a majority of members who do not
perform any executive function within the AIF.
6.2.3
Application of the proportionality principle
AIFs may in certain cases have the remuneration
provisions related to the establishment of the
remuneration committee and the requirements on the
Pay-Out process disapplied entirely subject to the
authorization of the competent authorities. 15
The MFSA had issued guidelines to the financial
services industry on the application of the
proportionality principle on March 2014. These
guidelines note that, in taking measures to comply
with the remuneration principles, AIFs should comply
in a way and to the extent that is appropriate to their
size, internal organization and the nature, scope and
complexity of their activities.
14 Referring to senior management, risk takers, control functions and other risk takers including members of the board of directors (executive and non-executive) and persons
involved in the portfolio management function
15 Refers to the requirements on: variable remuneration in instruments; retention; deferral; and ex-post incorporation of risk for variable remuneration (e.g., clawback/ malus
arrangements).
28 | The Malta Alternative Investment Funds
The following tables illustrate the thresholds under or above which the MFSA’s guidelines and the corresponding
principles may be applied or disapplied.
Type of AIF
Value of portfolio of
the AIF
Do the rules on the
“pay-out process” apply?
Does the AIF need to establish a
remuneration committee?
Leveraged
Less than €100m
No
No
Between €100m
and €1.25b
May be disapplied on the
basis of proportionality
May be disapplied on the basis of
proportionality
Over €1.25b
Yes. Full application
Yes. Full application
Less than €500m
No
No
Between €500m
and €6b
May be disapplied on the
basis of proportionality
May be disapplied on the basis of
proportionality
Over €6b
Yes. Full application
Yes. Full application
Unleveraged
6.2.4
Delegation
Contrary to ESMA’s guidelines on remuneration, the
MFSA in its guidelines noted that third-party entities to
which either the portfolio management or risk
management is being delegated will not be subject to
the remuneration requirements applicable to the AIF.16
6.3
Or
• One quarter of the preceding year’s fixed overheads
that may therefore exceed the cap of €10m
specified in the AIFM directive.17
Capital requirements
The AIF is to have sufficient financial resources at its
disposal to enable it to conduct its business effectively,
to meet its liabilities and to be prepared to cope with
the risks to which it is exposed. It is to maintain an
“initial capital” of €300,000 and that the net asset
value of the AIF is expected to exceed this amount on
an ongoing basis.
In addition if the portfolio of the AIF exceeds a value of
€250m, it is required to maintain “own funds” equal
to the highest of:
• 0.02% of the AIF’s portfolio in excess of €250m
capped at €10m
16 ESMA guidelines on sound remuneration policies under the AIFMD (ESMA/2013/232)
17 Within the meaning of Article 21 of the capital requirements directive (Directive 2006/49/EC)
The Malta Alternative Investment Funds | 29
07 Authorization
The authorization process can be summarised as follows:
Main documents
MFSA
Authorization process
7.1
Preparatory
Initial submission of
documents for authorization
including:
• Application Form
• Draft documents and any
additional information
Pre-licensing
•
Submission of final
documents
Initial consideration
In practice, a large amount of work will be performed
by the promoters, consultants, auditors or legal
advisors and proposed service providers before
submission of the application for authorization of an
AIF.
7.2
Post-licensing
•
•
Listing on the official list of
licensed entities
Issue of licence
• AIF promoters submit the draft application
documents as outlined below, which documents
will be reviewed by the MFSA and may request
additional evidence, corrections, or proof of the fit
and proper test, among other things.
• The MFSA will consider the nature of the proposed
AIF and a decision will be made regarding which
SLCs should apply. These represent ongoing
requirements which need to be satisfied.
Authorization process and
requirements
An AIF established in Malta, should obtain
authorization and license from the MFSA to be able to
operate. The approval process for setting up a new
AIF can be divided into three phases:
Phase 1 — Preparatory phase
• AIF promoters or managers prepare a detailed
proposal of their activities and discuss the terms at
meetings with the MFSA in order for the MFSA to
provide relevant guidance and clarifications as
necessary.
30 | The Malta Alternative Investment Funds
EY supports asset managers and investment
fund houses with the investment fund setup
and application for authorization, as well as
restructuring and liquidation.
Phase 2 — Pre-licensing phase
• When all review points noted in the draft
application are resolved, the MFSA will
issue an “in principle” approval for a license.
Following this, AIF promoters must:
• Finalize any outstanding matters
• Submit signed final application documents.
• A license will be issued once all pre-licensing
issues are resolved.
Phase 3 — Post-licensing/pre-commencement of
business phase
• The MFSA will determine whether the
applicant needs to satisfy any post-licensing
matters before formal commencement of
business can take off.
The initial application documents submission should
include:
• Application form
• Application fee
• A near final draft offering document/
marketing document
• A near final draft of the memorandum and
articles of association/partnership deed/
trust deed/ fund rules (as applicable)
• Resolution from the board of directors/
General partners/management company;
• Information including personal questionnaire
forms on the directors/general
partners of the AIF
• Information on the qualifying founder
shareholders (holding 10% or more of the
voting rights) including Personal
questionnaire forms
• Personal questionnaire forms, competency
forms and CVs of the individuals responsible
for the investment management and risk
management decisions of the AIF
• Personal questionnaire and competency form of the
compliance officer and money laundering reporting
officer
In the case of internally managed AIFs (see Secion 6),
the following additional documents must also be
submitted:
• Information including personal questionnaire and
competency forms on the investment committee
members
• Investment committee terms of reference
• Confirmations from the portfolio manager
and investment committee
• Portfolio and risk delegation agreements
(as applicable)
• Risk management policy document;
• Business plan
• Copy of the cover note to the insurance
policy if the AIF intends to cover potential
professional liability risks by way of
professional indemnity insurance
The MFSA recommends applicants to file an
application only once all constituents of the project
are in final draft form.
The Malta Alternative Investment Funds | 31
08 Salient features
of AIFs
8.1
Special purpose vehicles
An SPV is a legal entity which is set up for a specific
limited purpose by another entity (i.e., the originator),
in that the SPV has no purpose other than the
transaction for which it has been created. An AIF (or
the AIFM acting on behalf of the AIF) will establish an
SPV in order to facilitate investments in certain assets
such as benefiting from a regulatory and tax
perspective by incorporating the SPV in a more
attractive jurisdiction or to finance a new venture
without increasing the debt burden of the AIF.
From a regulatory perspective, the MFSA defines an
SPV as being setup by the AIF as part of its
investment strategy for the purpose of achieving its
investment objectives, being (directly or indirectly)
owned and controlled via majority of voting shares
and having the majority of the SPV’s directors in
common with the AIF. For a Malta-based AIF using an
SPV for investment purposes, it must ensure that the
SPV is established in a jurisdiction which is not a FATF
blacklisted country, it maintains at all time the
majority of directorship and it must ensure that the
investments effected through any SPV are in
accordance with the investment objectives, policies
and restrictions of the AIF.
8.2
For an investment fund to be re-domiciled to Malta, it
must be, formed and registered in an Approved
Jurisdiction, able to adopt a similar corporate
structure proposed to the AIF (e.g., as an investment
company), allowed to re-domicile by the laws of the
approved jurisdiction and not be in the process of
dissolution or winding up.
The process is seamless given that the AIF regime
allows service providers to be based in other
jurisdictions. Also, there is no transfer of assets and
the status of investors does not change.
8.3
Side pocket
Where an AIF invests in illiquid assets, some or all of
these assets may, under certain circumstances, be
transferred to a side pocket. The purpose of side
pockets is to mitigate risks arising from certain assets
becoming illiquid, thus the AIF would not realise such
asset to meet its redemption obligations, or turns out
to be hard-to-value and as a result the price of shares
for subscription and redemption will not accurately
reflect the fair value of the assets as it cannot be
valued accurately.
Re-domiciliation of AIFs
Maltese legislation allows for the re-domiciliation of
corporate entities, which means that an investment
fund established as an investment company in
another jurisdiction may continue to exist in Malta
under certain conditions. The continuation allows for
the transfer of the corporate entity seat of
incorporation from one jurisdiction to Malta thus
allowing the continuing corporate existence of the
re-domiciled corporate entity.
32 | The Malta Alternative Investment Funds
EY supports asset managers and investment
fund houses in the regulatory assessment
and implementation of bespoke features for
investment funds.
The assets in the side pocket would be separated from
the main pool of assets allowing the AIF to continue in
the issue and redemption of shares in the liquid pool
of assets.
On the date of the creation of the side pocket, the
assets are allocated to the new share class – the side
pocket. The investors of the existing share class will
receive shares in the side pocket on a pro-rata basis
according to their holding in the existing share class.
The side pocket is closed to any new subscriptions and
suspended from redemptions.
The AIFM is required to manage the assets in the side
pocket with the objective of realising them in the best
interest of, and if warranted, distributing the proceeds
to, investors. Shares in the side pocket are to be
redeemed upon the sale of the asset or when the
asset is transferred to the main liquid portfolio of
assets.
The MFSA permits the use of side pockets provided
that statutory information is disclosed in the AIF’s
constitutional documents and that certain conditions
are satisfied.
8.4
Side letters
The use of side letters allows for greater flexibility to
the AIF or its asset manager to enter into tailored
arrangements with specific investors without the
requirement to amend the conditions disclosed in the
AIF’s constitutional documents.
To create a side letter, the following conditions are to
be met:
• The side letter must be approved by the AIF’s
board of directors prior to being issued.
• Any side letter issued must be retained at the
registered office of the AIF and is to be
available for inspection by the MFSA during
compliance visits.
8.5
Draw downs
AIFs (established as SICAVs) targeting qualifying or
extraordinary investors may enter into written
agreements with investors to effect draw downs on
committed funds thus allowing investor funds to be
drawn down by the AIF or its asset manager as
investment opportunities arises.
Any AIF to provide such arrangement is to comply
with the following conditions:
• Request on committed funds shall be effected
pro-rata amongst all relevant investors in the
AIF.
• Any fresh call for further commitments shall
be made once all outstanding commitments
from existing investors have been requested.
• Any shares to be issued at a “discount” to
existing investors on committed funds, the
nature of which to be disclosed in the AIF’s
constitutional documents, shall be applicable
only to any outstanding commitment provided
that shares are issued at a price not below the
NAV at the time the investor first subscribed
to the shares.18
• Copies of the written agreements are to be
held at the AIF’s registered office and are to
be available for inspection by MFSA officials
during compliance visits.
• Specific risk warnings to be included in the
offering document noting that investors will
be issued shares at a “discount” if the NAV of
the share prevailing at the time of the draw
down exceeds the pre-agreed price otherwise
the investor would, in effect, be paying a
premium for such shares.
18 Companies Act (investment companies with variable share capital) regulations (Legal notice 241 of 2006, as amended)
The Malta Alternative Investment Funds | 33
09 Marketing under
the AIFM directive
9.1
Introduction
Marketing relates to any direct or indirect offering or
placement at the initiative, or on behalf, of the AIFM
of units or shares of AIFs it manages to investors
domiciled EU/EEA member states.
Specifically, the AIFM directive defines “marketing” as
the “direct or indirect offering or placement at the
initiative of the AIFM or on behalf of the AIFM of units
or shares of an AIF it manages to or with investors
domiciled or with a registered office in the EU”. This
means that the marketing provisions of the AIFM
directive do not apply to “reverse solicitation” or
“passive marketing” (i.e., marketing which is not at the
direct or indirect initiative of the AIFM). An EU
professional investor may thus invest, on its own
initiative, in AIFs anywhere in the world. This may
also be the only route for a non-EU AIFM to access
investors in the EU should it not satisfy the
passporting provisions under the AIFM directive or
the National Private Placement Regulations.
9.2
Marketing of an AIF
The marketing of AIFs depends on whether or not
they are managed in line with, and subject to, the full
AIFM directive requirements (Full AIFM regime AIF).
Full AIFM regime AIFs are AIFs which are managed by
an authorised AIFM or authorized as an internally
managed AIF. In summary, a Full AIFM regime AIF can
be marketed to:
• Professional investors in the EU/EEA: An EU
AIFM would benefit from the passporting
regime to market the units of the AIF they
manage to professional investors throughout
the EU/EEA.
34 | The Malta Alternative Investment Funds
Or
• Retail investors in the EU/EEA under stricter
national rules: Each EU/EEA member states
may permit authorized AIFM to market the
shares or units of the AIF they manage to
retail investors in the member states.
9.2.1
EU AIFMs and non-EU AIFMs
EU AIFM
The marketing regime for EU/non-EU domiciled AIFs
by, or on behalf of, EU AIFMs is summarized in the
table on page 35.
Non-EU AIFM
The AIFM directive applies to non-EU AIFMs that
manage EU AIFs or market AIFs (EU or non-EU) to EU
investors. The marketing regime for EU/non-EU
domiciled AIFs by, or on behalf of, non-EU AIFMs is
summarized in the table on page 35.
The risk profile of a UCITS may be defined as the
measure of risk aversion relative to the
investment strategy (i.e. risk-reward trade-off)
EY supports asset managers and investment
fund houses in the regulatory assessment and
notification for the distribution of the
investment fund.
EU AIFM
Domiciles
AIFM AIF
EU
EU
EU
EU
EU
Non-EU
Marketed
in the EU?
Yes
No
Yes
Is AIFM
directive
applicable?
Yes
Yes
Yes
AIFM
marketing
regime
Passport
None
NPPRs (until 2018)
Passport
(expected in late 2016)
EU
(1)
(2)
(3)
Non-EU
Yes
None
EU
Marketed
in the EU?
Yes
Is AIFM
directive
applicable?
Yes
AIFM
marketing
regime
NPPRs (until 2018)
Passport (expected
after 2016)
Non-EU
EU
No
Yes
None
Non-EU
Non-EU
Yes
Yes
NPPRs (until 2018)
Passport
Non-EU
Full directive except
the provisions on
depositary and
annual reports
Requirements
applicable to third-country
domiciles
None
None
Cooperation agreements (1)
AML requirements (2)
Cooperation agreements (1)
AML requirements (2)
Tax agreements (3)
Cooperation agreements (1)
Cooperation agreement between the competent authorities of the AIFM home member state and the supervisory authorities of the AIF third
country. See Annex 1 for the list of cooperation arrangements signed by the MFSA.
The AIF third-country is not listed as a NCCT by the financial action task force (FATF).
An OECD model article 26 compliant agreement must be signed between the non-EU AIF third-country, AIFM member state and any other
EU member state in which the non-EU AIF will be marketed.
Non-EU AIFM
Domiciles
AIFM
AIF
Non-EU
No
Requirements
applicable to the
AIFM and AIF
Full directive
Full directive
Full directive except the
provisions on depositary
but an entity must be
appointed to execute the
depositary functions
Full directive
Non-EU
No
No
None
Requirements
applicable to the
AIFM and AIF
Provisions on transparency
(1), and major holdings and
control (if applicable)
Full directive; “member state
of reference” authorization
(4) to manage EU AIFs or
market AIFs in EU
Requirements
applicable to third-country
domiciles
Cooperation agreements (2)
AML requirements (3)
(expected from 2017)
Full directive; “member state
of reference” authorization to
manage EU AIFs
Provisions on transparency (1),
and major holdings and control
(if applicable)
Cooperation agreements (2)
AML requirements (3)
Tax agreement (4)
(expected from 2017)
Full directive; “member state
of reference” authorization to
market non-EU AIFs in EU
None
Cooperation agreements (2)
AML requirements (3)
Tax agreement (4)
Cooperation agreements (2)
AML requirements (3)
Tax agreement (4)
Cooperation agreements (2)
AML requirements (3)
(1) Annual report, disclosure to investors and reporting to competent authorities.
(2) Cooperation agreement between the competent authorities of each member state where the AIF is marketed, the AIF’s home member state
(or the AIF’s country of establishment supervisory authorities for non-EU AIFs) and the supervisory authorities of the AIFM third country of
establishment. See Annex 1 for the list of cooperation arrangements signed by the MFSA.
(3) The AIFM third country is not listed as a NCCT by the Financial Action Task Force (FATF).
(4) An OECD Model Article 26 compliant agreement must be signed between the non-EU AIF third country, AIFM member state and any other
EU member state in which the non-EU AIF will be marketed.
The Malta Alternative Investment Funds | 35
9.3
Internally managed AIFs —
a passporting alternative
As a practical matter, an EU AIFM which markets an
EU AIF, or an internally managed EU AIF, will have an
advantage over any EU or non-EU AIFM which
markets a non-EU AIF, as the EU AIF has the benefit
of the marketing regime. The AIFM directive provides
that where the legal form of the AIF allows for
internal management and that the AIF chooses not to
appoint an external AIFM, the AIF may itself be
authorised as an AIFM. The Maltese regulatory
framework already allows for an AIF to be internally
managed. Non-EU asset managers can therefore avail
themselves of the marketing provisions by
establishing an internally managed AIF to be
marketed as an authorised AIFM, which in turn could
delegate the investment management function to the
non-EU asset manager.
9.4
The notification procedure
Before EU AIFMs (or “internally managed” EU AIFs) or
non-EU AIFMs benefit from the passporting provisions
(once it is phased in for third-countries) to market
their AIFs to “professional investors” in a EU member
state, they must notify the competent authority in
their respective home member state or member state
of reference for each AIF.
• A description of, or any information on, the
AIF available to investors, as well as
information that must be provided to them
before they invest
• Information on where the master AIF is
established, if the AIF is a feeder AIF
• Any additional information concerning
disclosure obligations of the AIF
• The identification of the member state(s) in
which it intends to market the AIF
• Details of the measures to be undertaken to
prevent the AIF from being marketed to Retail
Investors
For “internally” managed AIFs, the notification letter
shall also include a programme of its operations.19
For cross-border marketing (marketing in member
states other than the AIFM’s home member state) the
competent authority shall, within 20 days, transmit
the complete notification file to the competent
authorities of each EU member state which it intends
to market the AIF, including an attestation that the
AIFM is authorised to manage AIFs with a particular
investment strategy. Upon transmission, the
competent authority of the AIFM shall notify the AIFM
of the transmission. The AIFM may start to market the
AIF in the host member state(s) as from the date of
such notification. In so far the AIF shall be marketed
to “retail investors” in host member state (if allowed)
shall be subject to law and restrictions of the host
member state.
The notification must include:
• A notification letter, identifying the AIF which
the AIFM intends to market and information
on where it is established
• The AIF’s offering document or instruments
of incorporation
• The identity of the depositary of the AIF
19 The programme operations generally includes details on the licensable activities, operational arrangements, liquidity management policy, risk management policy,
valuation policy, remuneration policy, conduct of business and conflicts of interest policy of the “internally managed” AIF.
36 | The Malta Alternative Investment Funds
The Malta Alternative Investment Funds | 37
10 AIF
structures
10.1 Introduction
10.3 Money market funds
A major benefit of AIFs is that the AIFM directive does
not impose restriction on the type of eligible assets an
AIF may invest in other than general investment
restrictions pertaining to the diversification of risk in
relation to AIFs targeting experienced investors – who
are more akin to retail investors.
The MFSA had issued supplementary conditions for
AIFs setup as a Money Market Fund (MMF) having
adopted a two-tiered approach for a definition of
money market funds:
The MFSA has issued guidance notes on different
types of structures an AIF may be established as. This
section provides a brief outline of the requirements
relating to AIFs being structured as a money market
fund or as a loan fund.
10.2 Alternative AIFs structure —
recognized cell company
The MFSA has introduced the “cellular concept” as a
new vehicle for setting up investment funds in Malta
which caters in particular to fund platforms.
Investment funds would be established as incorporated
cells within the platform of a recognized cell company
(RICC).20
Similar to a multi-fund, the RICC platform provides for
the separation of the assets and liabilities between the
RICC and each incorporated cell. The difference is
that in a RICC structure liability is limited through the
separate legal identity of each incorporated cell (as
each cell has its separate legal personality), whereas
in multi-fund AIF, limitation of liability is achieved
through the option of segregation of assets and
liabilities of each sub-fund stipulated by virtue of the
memorandum of association of the AIF. The benefit
of the RICC structure is that it allows for several types
of licensed investment funds to coexist under one
platform while retaining separate features and
separate legal patrimonies while each incorporated
cell may benefit from certain cost savings through the
centralization and standardization of contractual
agreements.
20 Companies Act (Recognized incorporated cell companies) regulations
38 | The Malta Alternative Investment Funds
• Short-term money market fund
• Money market fund
Both short-term MMFs and MMFs must comply with
general guidelines and also have to comply with
specific guidelines relating to their category.
A money market fund must indicate in its offering
documents whether it is a short term MMF or a MMF
and should provide sufficient information to investors
on the risk and reward profile of the AIF and identify
specific risks linked to the investment strategy of the
AIF.
EY supports asset managers and investment
fund houses in the regulatory assessment
and formation of bespoke of investment
funds.
Requirements applicable to MMF
Short-term MMF
MMF
Objective
Having the primary investment objective of maintaining the principal of the AIF and aim to provide a return in line with money
market rates
Valuation method
Constant net asset value (NAV) or variable NAV
Variable NAV
Type of NAV
Marking-to-market or amortised cost
Marking-to-market
Dealings
Daily subscription and redemption (unless marketed solely as an employee savings scheme)
Eligible assets
• Money market instruments which comply with the criteria for money market instruments as set out in the
rules (requirements outlined hereunder)
• Deposits with credit institutions
• Derivatives used in line with money market investment strategy of the fund. Derivatives which give exposure
to foreign exchange may only be used for hedging purposes. Investment in non-base currency securities is
allowed provided the currency exposure is fully hedged.
• Other investment funds that comply with the definition
of a short-term MMF
• Other investment funds that comply
with the definitions of a short-term
MMF or a MMF
The Malta Alternative Investment Funds | 39
10.4 Loan funds
The requirements for AIFs structured as “loan funds”
are summarized below.
An AIF is allowed to “invest through loans” provided
that it constitutes either:
• The direct origination of loans by the AIF
Or
• The acquisition by the AIF of a portfolio of loans or a
direct interest in loans which gives rise to a direct
legal relationship between the AIF (as lender) and
the borrower
Conditions and restrictions
General requirements
• The PIF may only issue loans to unlisted companies and SMEs provided the entity receiving
the loan is prohibited from transferring such loan to a third-party nor it qualifies as a
“financial undertaking”21
• Households and individuals are not eligible to receive any financing from the AIF
• The PIF is to be structured as a “closed ended” fund
• (In case of multi-fund AIFs) all sub-funds are to be licensed as “loan funds”
Eligible investors and minimum entry levels
• Professional clients as defined in Section I of Annex II of MiFID
• An investor elected to be treated as a “professional client” and commits to invest a minimum
of €100,000
• Qualifying investors (as defined in Section 3.3)
• Extraordinary investor (as defined in Section 3.3)
Investment restrictions
• Short selling, leverage and reuse of collateral is not permitted
• May invest up to 30% of its assets in liquid assets
• Up to 10% of its capital may be issued as loans to a single “eligible entity” (the said restriction
shall also apply in case the PIF is to invest in a “portfolio of loans”)
• May invest up to 10% of its capital in units of other “loan funds”
• The aggregate value of the units in other “loan funds” shall not exceed 20%
• The PIF may acquire up to 25% of the units of a single “loan fund”
• Borrowing is permitted subject to certain restrictions
• Cross sub-fund investment is allowed subject to certain restrictions (Refer to Section 4.1)
• May engage in “foreign currency lending” subject to the high level principles in MFSA rule 1
of 2012 on foreign currency lending22
Valuation
• May be performed either by an “external valuer,” being independent from the investment
manager and PIF, or by the investment manager provided that such task is functionally
independent from the portfolio management function and the credit granting function; and
other measures ensure that conflicts of interest are mitigated and that undue influence
upon the internal valuers is prevented.
21 The term “financial undertaking” shall be defined as: (a) a credit institution as defined in point (1) of article 4(1) of regulation (EU) 575/2013; (b) an investment
firm as defined in point (1) of article 4(1) of directive 2004/39/EC; (c) an insurance undertaking as defined in point (1) of article 13 of directive 2009/138/EC; (d) a
financial holding as defined in point (20) of article 4(1) of Regulation (EU) 575/2013; and (e) a mixed-activity holding company as defined in point (22) of article
4(1) of Regulation (EU) 575/2013
22 The term “foreign currency lending” means lending in any currency other than the legal tender of the country in which the borrower is domiciled.
40 | The Malta Alternative Investment Funds
The Malta Alternative Investment Funds | 41
11 Transparency and
reporting obligations
11.1 Introduction
The AIFM directive has introduced new transparency
and regulatory reporting obligations for AIFMs (and
“internally managed” AIFs) in respect of each EU AIF it
manages and for each of the AIFs marketed in the EU.
In this regard, AIFMs and “internally managed” AIFs
are to provide a multitude of information to both
competent authorities and investors, on a periodic
basis.
11.2 Annual reports
•
•
•
•
•
•
•
•
AIFs are to produce an annual report, including
audited financial statements which is to be provided
to investors on request and to be made available to
the MFSA within six months of the end of the AIF’s
accounting period.
11.3 Disclosure to investors
AIFs must have an offering document for which the
AIF and/or the AIFM are responsible for. The offering
document must have sufficient information to enable
investors to make an informed decision on investing
in the AIF, in particular the risks attached thereto as
prescribed in the MFSA’s rules. The AIFM directive
also requires that AIFMs shall, in respect of each of
the EU AIFs it manages and for each of the AIFs
marketed in the EU, make available to investors the
following information both prior to their initial
investment and at material changes thereto:
• Investment strategy, objective and details of how
any changes may be implemented
• Information on where any master AIF is established
and in the case of fund of fund
42 | The Malta Alternative Investment Funds
•
•
structures where the underlying funds are
established
The main legal implications of the investment
contracts
Intended leverage and collateral arrangements;
The identity of the service providers (AIFM,
depositary, valuer, auditor, prime broker, etc.,
their obligations, including depositary liability
and investors’ rights)
Description of how the AIFM complies with the
capitalization requirements
Valuation procedures
Fees and expenses to be borne by investors
Provisions to ensure fair treatment of investors,
together with details of any preferential treatment
The latest net asset value and historical performance
information where available
Latest audited annual reports within 6 months of the
year end date
Liquidity management procedures, including how
subscriptions and redemptions are processed
Ordinarily, the said information would be included in the
AIF’s offering document, however, the AIFM (or
internally managed AIF) may resolve to include such
information in a separate fact sheet or internet-based
document especially in cases where such information
(or part thereof) is likely to change over time.
EY supports managers and investment fund
houses with the drafting of the investment
funds’ documents including offering
documentation and other investor
information, preparation of financial reports
and periodic reporting to the supervisory
authority.
11.4 Ongoing disclosure requirements
An AIFM (or internally managed AIF) is required to
provide, in respect of each of the EU AIF and AIF
marketed in the EU, the following information to
investors on a periodic basis:
• The percentage of the AIF’s assets which are
subject to special arrangements arising from
their illiquid nature (e.g., side pocket arrangements)
• Any new liquidity management arrangements
• The current risk profile and risk management
systems employed to manage those risks
• If the AIF employs leverage, any change to the
maximum level of leverage permitted as well as
any re-hypothecation rights or any guarantee
granted under the leveraging arrangement and
the total amount of leverage that it employs
The frequency of such disclosure will vary depending
on on-going changes under each of the categories
outlined above.
• The markets in which it is a member or where it
actively trades
• The diversification of the AIFs portfolio, including,
but not limited to, its principal exposures and most
important concentrations
Information in respect of each AIF:
• The percentage of its assets which are subject to
special arrangements arising from their illiquid
nature
• Any new arrangements for managing its liquidity
• Its current risk profile and the risk management
systems adopted by the AIFM to manage the
market risk, liquidity risk, counterparty risk and
other risks including operational risk
• Information on the main categories of assets in
which it invests in
• The results of the period stress tests under
normal and exceptional circumstances
The table on page 44 provides a summary of the
reporting frequency applicable to AIFMs and specific
types of AIFs.
11.5 Reporting obligations to competent
authorities
Information by the AIFM
An AIFM is required to submit the following
information to the EU competent authorities, whereby
in the case of EU AIFMs (and “internally managed”
AIFs) will be the competent authorities of the AIFM’s
home member state and for non-EU AIFMs will be in
each member state in which it markets the AIFs units:
• The main instruments in which it is trading,
including a break-down of financial instruments
and other assets, including the AIFs investment
strategies and their geographical/sector
investment focus
The Malta Alternative Investment Funds | 43
Reporting frequency
Regulatory framework
Assets under management
Leveraged
AIFM
Unlevereged
Specific AIF reporting
44 | The Malta Alternative Investment Funds
• Greater than €100m but not exceeding
€1b
• Exceeding €1b
• Greater than €500m unleveraged with
5 year lock-up period, but does not
exceed €1b
• Exceeding €1b
• AIFs exceeding €500m
• Unleveraged AIFs investing in non-listed companies and
issuers in order to acquire control
Frequency
Half-yearly
Quarterly
Half-yearly
Quarterly
Quarterly
Annual
The Malta Alternative Investment Funds | 45
12 Admissibility
for listing
12.1 Introduction
An AIF that is not private may apply for admissibility
on the Malta Stock Exchange (MSE). Listing on a stock
exchange has its benefits of enhancing the AIF’s profile
and marketability. In certain cases, investors, in
particular institutional investors (e.g., pension funds),
may only invest in shares which are listed on a
recognized exchange.
• At least one director of the AIF is independent
from the AIFM or any investment advisor or of
any affiliated entity
• Corporate directors are generally not allowed
other from the AIFM
• The AIF must comply with the rules and
regulations issued by the listing authority
• Directors are precluded from dealing in units
of the AIF if they are in possession of
price-sensitive information
12.2 Application for authorization and
admissibility for listing on MSE
A formal application should be lodged with the Listing
Authority in terms of the listing rules. Such
application must be completed and signed by a duly
authorized representative of the AIF. A Maltese AIF is
to submit:
• A formal application
• Copy of the offering document (marked in the
margin to indicate where the provisions in the
listing rules have been satisfied)
• Any other documents or information which the
listing authority shall require
The listing authority shall communicate its decision to
accept or refuse an application before the end of the
period of 20 days beginning with the date on which the
application is received.
EY Listing services:
•
12.3 General rules and conditions for
admission on the MSE
•
•
An AIF is required to meet certain requirements for its
units to be admitted to listing on the MSE. These
include:
• Units must be “freely transferable”
46 | The Malta Alternative Investment Funds
•
Feasibility analysis and determination
of listing process and requirements
Support with preparation and
submission of listing application
Support with selection of listing service
providers
Support with changes of fund listing
The Malta Alternative Investment Funds | 47
13.1 Introduction
conditions), or the home member state of the AIFM or
in the member state of reference of the AIFM.
The AIFM directive requires that for each AIF a
depositary to be appointed. EU AIFMs are to appoint a
depositary for EU AIFs and non-EU AIFs marketed in
the EU. A Non-EU AIFM is to appoint a depositary for
non-EU AIF once these marketed in the EU with a
passport.
The AIFM directive provides exemptions where a
depositary need not be appointed in case of:
The depositary is to be appointed by a written which
contractual particulars are set out in the directive. It
shall safekeep the AIF’s assets, monitor its cash flows
and perform other oversight duties. It may also
delegate the safekeeping duties to third parties subject
to certain conditions. The AIFM directive has also
introduced a strict liability regime on the depositary
and its delegates.
13.2 Eligible entities
The AIFM directive requires that an EU AIF and a
non-EU AIF to appoint a depositary being either:
• A licensed EU credit institution
• A licensed EU MiFID firm authorised to provide
the services of safe-keeping of assets
Or
• Any other entity permitted to act as
depositary pursuant to UCITS IV directive
For a non-EU AIF, the depositary may be an entity
equivalent to an EU credit institution or EU MiFID firm
subject to effective prudential regulation and
supervision that has the “same effect” as EU law.
The depositary for an EU AIF is to be established in the
EU AIF’s home member state. For non-EU AIF, the
depositary must be established in the third country
where the AIF is established (subject to additional
23 Article 21(7) of directive 2011/61/EU
24 Article 21(8) of directive 2011/61/EU
25 Article 21(9) of directive 2011/61/EU
26 MFSA negotiated the derogation to Article 61(5) of the AIFM directive
48 | The Malta Alternative Investment Funds
• A non-EU AIF managed by non-EU AIFM and is
marketed in the EU via the national private
placement regime
Or
• A non-EU AIF managed by an EU AIFM but not
marketed in the EU
A non-EU AIF managed by an EU AIFM and is marketed
in the EU via the national private placement regime is
not required to appoint a depositary. An entity instead
is to be appointed to be responsible only for
monitoring the AIF’s cash flows23, safekeeping of the
AIF’s assets24 and overseeing the sale, issue,
repurchase, redemption and cancellation of units or
shares of the AIF25 – the “depository lite” regime.
The “depositary lite” regime shall also be applicable to
AIFs which have no redemption rights for a period of
five years from date of initial investment and does not
invest in assets that must be held with a depositary
(e.g., private equity funds).
An AIFM is not to be appointed as depositary. A
depositary is also not to be engaged as an external
valuer or as prime broker (acting as counterparty to
the AIF) unless certain conditions are met (see Section
13.7).
A Malta-based AIF may appoint a depositary (an EU
credit institution) based in another EU member state,
at least until 22 July 2017.26 The depositary may
however need to be established in Malta after this
date. Still, alternative routes may be adopted after the
end of the transitional period which may involve the
extension of the derogation, beyond 2017.
13.3 Duties of the depositary
A depositary serves the functions of:
• Safekeeping the AIF’s assets
• Overseeing compliance with the AIF’s constitutional
documents and its applicable regulations (the “AIF
applicable rules”)
An obligation on the depositary to monitor the AIF’s
cashflow is also separately set out in AIFM directive.
13.3.1 Safekeeping
The safekeeping duties of the depositary shall entail:
• Holding in custody:
• Financial instruments that can he held in custody
in segregated accounts (i.e., separate from the
depositary’s own assets)
• Maintained in the name of the AIF or the AIFM
acting on behalf of the AIF
• All financial instruments that can be physically
delivered to the depositary
• For the other assets which cannot be held in
custody, the depositary shall keep record of the title
of ownership in order to verify that the AIF is indeed
entitled to such assets. The depositary shall rely on
the information provided by the AIF (or AIFM on its
behalf or), and if available, from external parties for
which the depositary deems appropriate. It must
ensure that such “other assets” cannot be
transferred without its knowledge
13.3.2 Cash flow monitoring
The depositary is to monitor the AIF’s cash-flows apart
from ensuring that payments from investors and all AIF
cash are booked in cash accounts opened in the name
of the AIF, or the AIFM or the depositary on behalf of
the AIF. It is to certify that payments made by investors
on the subscription of shares in the AIF have been
been received and that all cash belonging to the AIF is
booked correctly on the accounts opened. It will
(ordinarily) need to perform daily reconciliations of all
AIF cash-flows on an ex-post basis.
13.3.3 Oversight functions
The oversight duties refer to the depositary’s
obligation to ensure that the AIF acts and its
transactions are carried out in accordance to the AIF
applicable rules, this includes ensuring that the issue
and redemption of the AIF’s shares; the value of the
AIF’s shares; any instructions carried out by the AIFM
(or AIF if internally managed); and any of the AIF’s
income is accounted for — in accordance to the AIF
applicable rules.
13.4 Delegation of duties
The depositary may only delegate its safekeeping
duties to third parties if it can demonstrate that:
• There is objective reason for delegation and
not to avoid requirements of the AIFM directive
• It has exercised due skill, care and diligence in
selecting, appointing, periodically monitoring
and reviewing the delegate
The same provisions shall apply to the delegate for
segregating the AIF’s assets to limit the risk
associated with the insolvency of the delegate.
Where financial instruments need to be held in
custody by entities in third countries and no local
entity satisfies the delegation requirements in the
AIFM directive, the depositary may still delegate its
custody function to such entity subject to the AIF’s
investors being informed, in advance, of the rationale
of such delegation and the AIF or AIFM on its behalf
instructs the depositary to delegate to such local
entity.
The Malta Alternative Investment Funds | 49
The depositary will remain responsible for the
safekeeping of the AIF’s assets and its liability shall, in
general, not be affected by delegation even though a
loss may be caused by the delegate (see Section 13.4).
13.5 Liability
In general, a depositary shall be liable to an AIF or its
investors for any loss of financial instruments held in
custody by the depositary itself or third party
delegated with the custody function.
A loss of a financial instrument held in custody is
deemed to have taken place where:
• The ownership right is not valid because it
either ceased to exist or never existed
• The AIF has been deprived of its right of
ownership over the financial instrument
Or
• The AIF is unable to directly or indirectly
dispose of the financial instrument
In such cases, the depositary will be obliged to return
a financial instrument of identical type or the
corresponding value to the AIF. The depositary is also
liable to the AIF or its investors for all other losses
suffered by them as a result of negligence or
intentional failure of the depositary in performing its
duties.
The depositary may be exempted from liability if it can
prove that the loss was as a result of an external
event beyond its reasonable control and having
unavoidable consequences.
13.5.1 Liability in case of delegation
A depositary may contractually discharge liability when
the loss has been caused by a delegate, if it can prove
that:
50 | The Malta Alternative Investment Funds
• It has met all of the delegation requirements
prescribed in the AIFM directive
• The written contract between the depositary
and the delegate expressly transfers the
liability to the delegate and permits the AIF, or
AIFM on its behalf, to claim against the delegate
in case of the loss of financial instruments or for
the depositary to make such a claim on their behalf
• The depositary’s contract with the AIF, or AIFM
on its behalf, expressly allows a discharge of
the depositary’s liability and establishes the
objective reason for this
The depositary is considered to have “objective reason”
to discharging liability if it can demonstrate that it had
no other option but to delegate its custody duties to a
third party. This shall be the case where:
• The law of a third country requires that certain
financial instruments be held in custody by a
local entity and local entities exist that satisfy
the delegation requirements in the AIFM
directive
• The AIFM insists on maintaining an investment
in a particular jurisdiction despite warnings by
the depositary
See Section 13.5.2 for further details on liability
discharge.
13.5.2 Liability discharge
The AIFM directive provides limited scope for a
depositary to transfer the custody function and
discharge liability. The MFSA has in this regard
provided guidance on three possible models, with
variations within each model to seek to balance the
impact of liability provisions and operational
complexity.
Model 1 - Prime broker appointed as sub-custodian and uses own sub-custody network
AIF
Option A: Depositary
retains liability
Under this model, the depositary appoints the prime
broker as its sub-custodian with the prime broker using
its own sub-custody network. Liability risk may be
mitigated by enhanced due diligence on the prime
broker and its sub-custody network.
Depositary
Option C: Indemnity
provided by prime
broker to depositary
Option B: Depositary
transfers liability to
prime broker
Prime broker
Sub-custodian A
Sub-custodian B
Sub-custodian C
To address the liability issue, variations to this model
require that either the depositary retains liability for
the loss of financial instruments held in custody
(Option A), the depositary discharges the liability to the
prime broker, who in turn may trasfer the liability to its
sub-custodians (Option B), or the depositary retains the
liability but receives a contractual indemnity from the
prime broker for any loss arising directly out of the
actions of the prime broker of sub-custodians within its
network (Option C).
Model 2 - Prime broker appointed as sub-custodian and uses depositary’s own sub-custody network
In this model, the depositary retains liability on the
condition that the prime broker uses the depositary’s
own sub-custodian network. The AIF’s assets will be
held within the depositary’s own sub-custody network
and can be monitored by the depositary but are settled
and cleared by the prime broker. The prime broker will
however need to establish multiple new sub-custody
networks in addition to its’ own sub-custody network.
AIF
Depositary
(retains liability)
Prime broker
Prime broker appoints
Depositary’s
sub-custodian network
or global sub-custodian
A variation of this model would be that the prime
broker appoints the depositary’s affiliate global
sub-custodian, which in turn would manage the
sub-custodian network. The benefit is that the prime
broker would have only one contractual agreement
with the global sub-custodian. However this may
create some additional timing and settlement
inefficiencies due to the additional of the global
sub-custodian.
The Malta Alternative Investment Funds | 51
Model 3 — Depositary holds all assets and passes collateral to and from the prime broker
AIF
Depositary
holds assets
This model allows for the prime broker to act as
counterparty to the AIF, with the depositary
performing the custody function. The prime broker will
need to move all of the AIF’s assets that are in custody
to the depositary at the end of each day through
collateral derivatives, also referred to as “the UCITS
model”. The depositary shall retain control on the AIF’s
assets and therefore can retain liability.
Prime broker
13.6 Depositary contract
The appointment of a depositary is to be evidenced by
a written agreement. The AIFM directive sets out the
contractual particulars by which the depositary is to be
appointed which will regulate the flow of information
deemed necessary to allow the depositary to perform
its functions.
52 | The Malta Alternative Investment Funds
Content of a depositary contract
• Description of the services to be provided by the
depositary and the procedures adopted in respect of
each asset type the AIF may invest in and the regions
in which the AIF intends to invest
• Description of how the safekeeping and oversight
functions shall be performed and the escalation
procedure related to any risk identified
• Period of validity, amendment and termination of
contract and its procedure
• Means, procedures for transfer of information
between depositary, AIF or AIFM on its behalf and
any third-party
• Description of delegation of services including a
statement that the depositary liability shall not be
affected by any delegation of its custody functions
unless it has discharged itself of such liability
13.7 Prime broker
AIFMs may make use of prime brokers being either a
credit institution, a regulated investment firm or
another entity subject to prudential regulation and
ongoing supervision that:
• Offers to professional investors services
related to finance or execute transactions in
financial instruments as counterparty
• May also provide other services such as
clearing and settlement of trades, custodial
services, securities lending, customized
technology and operational support facilities
A depositary is to be notified of the contract with the
prime broker being appointed. The possibility of
transfer and reuse of the AIF’s assets shall also be
provided for in such contract and shall comply with the
AIF applicable rules. The prime broker shall also be
required to report to the depositary.
A depositary may act as prime broker, being
counterparty to the AIF, only if it has functionally and
hierarchically separated the performance of its
depositary function from its tasks as prime broker and
any potential conflicts of interest are properly
identified, managed, monitored and disclosed to the
AIF’s investors.
The Malta Alternative Investment Funds | 53
14 Valuation under
the AIFM directive
14.1 Implementation of valuation policies
and procedures
For the purpose of this section any reference to AIFMs
shall also refer to internally managed AIFs.
AIFMs must have in place policies and procedures to
ensure proper and functionally independent valuation
of the assets of AIFs under management. AIFMs must
also document the procedures for calculating the
NAV of each AIF managed.
In its technical advice, ESMA identifies the general
principles to be adopted by AIFMs in developing and
implementing the policies and procedures related to
the valuation function.27 In addition to the valuation
methodologies that will be used for each type of asset
in which the AIF may invest, an AIFM shall not invest
in a particular type of asset for the first time unless
appropriate valuation methodologies have been
identified in advance.
The policies are also to set out the obligations, role
and duties of all parties involved in the valuation
process. The policies should outline how a change to
the valuation policy, including methodology, may be
effected. Where the valuation is carried out by the
AIFM itself, the policies must also include details of
any safeguards to be put in place for the independent
performance of such task. Where an external valuer is
appointed, the policies and procedures should set out
the process for the exchange of information between
the AIFM and external valuer.
If a model is used to value the assets, it must be
explained in the policies and procedures. Any model to
be implemented must be validated by a person not
involved in the building process of the model, with the
validation process to be appropriately documented.
When setting up its procedures, the depositary should
have a clear understanding of the valuation
methodologies used by the AIFM or the external valuer
to value the AIF’s assets. The frequency of such checks
should be consistent with the frequency of the AIF’s
asset valuation. Also, the depositary should take all
necessary steps to ensure that appropriate valuation
policies and procedures for the assets of the AIF are
effectively implemented.
14.2 Valuation function
The valuation function must be performed either by:
• The AIFM itself subject to the task being independent
from the portfolio management and safeguards are
in place to mitigate any conflicts of interest or undue
influence upon the employees performing such task,
being independent from the remuneration policy.
Or
• An external valuer subject to mandatory professional
registration recognized by law or to legal or
regulatory provisions or rules of professional conduct,
independent from the AIFM, AIF and any other
persons with close links to the AIF or AIFM.
EY supports asset managers and investment
fund houses in defining or reviewing the
valuation process and the formation of
internal policies and procedures.
Policies and procedures are to be reviewed at least
annually and prior to the engagement of the AIF.
27 ESMA’s technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers directive
(ESMA/2011/379)
54 | The Malta Alternative Investment Funds
The depositary appointed for an AIF shall not be
appointed as external valuer of that AIF, unless it has
functionally and hierarchically separated the
performance of its depositary functions from its tasks
as external valuer and the potential conflicts of
interest are properly identified, managed, monitored
and disclosed to the investors of the AIF.
External valuers must provide professional guarantees.
The professional guarantees are to contain evidence of
the external valuer’s capabilities in performing the
valuation task, including evidence of:
• Sufficient personal and technical resources in
respect of the AIF’s investment strategy and
specific asset
• Adequate procedures safeguarding proper and
independent valuation
• Adequate knowledge and understanding in
respect of the AIF’s investment strategy and
specific asset
In case that an external valuer is appointed to value
only parts of the AIF’s portfolio, the external valuer is
required to provide resources, procedures, knowledge
and understanding which are sufficient in respect of
such asset.
An AIFM itself or a delegated third-party may carry
out the calculation of the net asset value and such
activity shall not constitute as valuation of
underlying assets provided that the AIFM or
third-party is not providing valuations for individual
assets, including those requiring subjective
judgement, but simply incorporates into the
calculation process the valuation of assets obtained
from the valuer.
14.3 Frequency of valuation of assets
The assets of an AIF must be valued and the NAV
calculated at least once a year.
For open-ended AIFs, financial instruments must be
carried out each time the NAV is calculated. The
valuation of “other assets” must be carried out when
the last determined value is no longer fair or proper,
if not, at least annually.
For closed-ended AIFs, such valuations and
calculations must be carried out in case of an
increase or decrease of the capital. While no definition
has been prescribed as to what is defined as an
increase or decrease in capital, it is expected that
capital call on committed capital will not be considered
as a capital increase.
14.4 Liability
The AIFM is responsible for the proper valuation of the
assets of the AIFs managed, the calculation and
publication of the NAV. The AIFM’s liability towards the
AIF and its investors shall, therefore not be affected by
the fact that the AIFM has appointed an external
valuer. However, the external valuer shall be liable to
the AIFM for any losses suffered by the AIFM as a
result of the external valuer’s negligence or intentional
failure to perform its tasks.
The Malta Alternative Investment Funds | 55
15 Taxation
15.1 Introduction
The Maltese tax system for AIFs is highly beneficial
for both investment fund and investor, while Malta’s
corporate tax regime makes the country the ideal
location for management companies and other service
providers to base operations.
15.2 Taxation on AIFs
The tax treatment of AIFs depends on the
classification of the fund. Maltese law distinguishes
between prescribed and non-prescribed funds, which
distinction, is important to establish whether and how
tax is to be charged on investment income, capital
gains and dividend contributions.
Prescribed Funds – are investment funds established in
Malta and have over 85% of assets which are situated in
Malta. Such AIFs are subject to a withholding tax of
10% which is imposed in interest, discounts or
premiums earned on Maltese government stocks or
bonds, and bonds issued by listed companies as well
as investment income payable by corporate entities.
Bank interest is taxed at 15% whilst income from
immovable property situated in Malta is subject to tax
at the normal rate of 35%.
Non-Prescribed Funds – are any investment fund which
does not qualify as a prescribed fund which has more
than 15% of assets situated outside Malta. Income and
gains derived from such funds are exempt from
income tax (except for profits and capital gains
relating to immovable property situated in Malta
which is taxed at the normal rate of 35%).
Subject to certain conditions, capital gains realized on
transfers or redemption of units by non-resident investors,
irrespective of whether the funds are prescribed or not,
are exempt from Maltese tax. Dividends distributed by a
fund whether these are reinvested or otherwise, to
non-resident subject to tax in Malta.
56 | The Malta Alternative Investment Funds
An exemption from stamp duty applies in respect of
transfers of securities by licensed funds and in
respect of transfers by investors of the units of a
licensed fund.
15.3 Taxation on individuals
The incidence of tax will depend on the type of
transfer whether the fund is prescribed or
non-prescribed, and the tax residence of the investor.
Since the withholding tax on prescribed funds is
charged at fund level, any capital gains made by
investors from the redemption, cancellation or
liquidation of securities in listed funds are not subject
to further tax in the hands of the investor.
In the case of non-prescribed funds, since most of the
income is exempt from tax, distributions are taxed at
the rate of 15% only when made to resident individuals.
Other distributions are not taxed in Malta.
15.4 Tax treatment from highly-qualified
professionals
Malta has introduced a new tax incentive scheme in
2011 targeting highly-qualified foreign executives.
Individuals having their domicile outside of Malta and
who are employed in senior positions with a company
that is licensed or recognized by the MFSA to conduct
financial business in or from Malta, can benefit from a
flat personal income tax rate of 15% on income up to
€5m. Any income over €5m will be tax-free.
In order to qualify for this tax incentive, the employee
must earn a minimum of €75,000 per year (adjusted
annually in line with the Retail Price Index), amongst
other criteria. The highly-qualified persons rules,
2011, provides relevant information on the executive
positions that may benefit from such incentive.
EU nationals can benefit for a maximum period of ten
years from the reduced tax rate wheras EEA and
Swiss nationals for a period of five consecutive years.
The Malta Alternative Investment Funds | 57
16 How can
we help?
16.1 Who we are
In Malta, we combine our European and global
capability with our local knowledge to deliver a full
range of services to meet our clients’ business needs.
Our global asset management network encompasses
key financial centers in EMEIA (Europe, Middle East,
India and Africa), the Americas, Asia-Pacific and
Japan, comprising 13,500 professionals including
over 1,000 partners. For several years, the Maltese
firm has been investing heavily in staff development,
office modernization and information technology. The
professionalism of our teams combine to offer our
ever-increasing portfolio of clients a seamless service
focused mainly on the provision of value.
Our combination of talent and resources gives us the
ability to anticipate and adapt to the rapid and
accelerating changes to today’s global economy.
16.2 How we support our clients
Being the most globally connected of the Big Four
organizations, operating in four integrated regions —
the Americas, EMEIA, Asia-Pacific, and Japan —
enables our Malta Asset Management Advisory
practice to work effectively on a cross-border basis:
• Moving swiftly to bring together the best
teams to serve our clients, working together
on key issues, and leveraging our strengths,
capabilities, and knowledge irrespective of
geographies
• Providing seamless, consistent, high-quality
services to our financial services clients
across EMEIA and globally
• Responding quickly and effectively to market
developments that impact our clients
58 | The Malta Alternative Investment Funds
• Providing our clients access to our perspective
on current and emerging trends, industry
issues, and regulation
• Providing our clients access to our perspective
on current and emerging trends, industry
issues, and regulation
16.3 Our services
Our Asset Management Advisory Services include
regulatory services, audit, financial accounting, and
tax covering the complete lifecycle of an investment
fund from concept, through launch, to business as
usual, and beyond.
We tailor our approach to the unique needs of each
client of the investment fund, asset management and
fund service providers industry, serving as a business
advisor to management while providing the objectivity
demanded by regulators, boards, counterparties, and
investors. Our multi-disciplinary approach
encompassing regulatory, tax, reporting, and other
operational aspects allow us to provide a holistic
answer to our clients’ needs.
We can assist you with a wide range of services
including:
Asset management advisory services
Assisting fund promoters, asset managers and fund
service providers in:
• The conception, design and authorization of
investment funds as well with the application
for authorization, restructuring and liquidation
• The selection of the relevant service providers
• The definition of a market positioning strategy
related to the concept and strategy of external
distribution channels
• The registration of your investment fund with
local regulatory authorities
Audit services
Listing services
Our audit service adopts a thorough examination of
your organization’s needs to assist you with:
• Feasibility analysis and determination of the
listing process and requirements
• Support with the selection of a local listing
agent, calculation agent, and any other service
providers
• Ongoing external audit, including audit of the
regulatory returns
• Accounting and financial reporting
• Financial accounting advisory
• Service organization control reporting
Tax services
Supporting implementation and review of compliance
with current and future tax requirements, including:
• Corporate tax advice and reporting
• European fund tax reporting services
• Tax compliance, including periodic submission
of tax returns and tax computations
• VAT compliance and advisory services
• Local and international tax compliance,
reporting and planning
Valuation and business modeling services
• Valuation support services in the context of
the AIFM directive
• Valuation services including model review and
OTC derivative valuation
• External opinion as external valuer
• Select valuation services (e.g., selected
parameters)
• Impairment testing
• Model building
• Model validation and review
The Malta Alternative Investment Funds | 59
17 Glossary
Term
Definition
AIFM directive
Directive 2011/61/EC of the European parliament
and of the council of 8 June 2011 on Alternative
Investment Fund Managers including the commission
delegated regulation (EU) No 231/2013, commission
implementing regulation (EU) No 447/2013 and
commission implementing regulation (EU) No 448/
2013
Alternative Investor Fund or AIF
A collective investment scheme, including sub-funds
thereof, which raises capital from a number of
investors, with a view to investing it in accordance
with a defined investment policy for the benefit of
those investors, and which does not qualify as a UCITS
Scheme in terms of the UCITS directive
Alternative Investment Fund Manager or AIFM
A legal person whose regular business in managing of
AIFs in terms of the AIFM directive
Closed-ended AIF
An AIF which is not an open-ended AIF
De minimis AIFM
A fund manager which: (i) either directly or indirectly
manages AIFs whose assets under management,
including any assets acquired through use of leverage,
in total do not exceed a threshold of €100m;
or (ii) either directly or indirectly manages AIFs whose
assets under management in total do not exceed a
threshold of €500m when the portfolios of
AIFs consist of AIFs that are unleveraged and have no
redemption rights exercisable during a period of 5
years following the date of initial investment in each
AIF
External valuer
A person/entity to undertake the valuation task being
independent from the AIFM or AIF and any other
persons with close links to the AIF or the AIFM
Feeder AIF
An AIF which invests at least 85% of its assets in one
AIF
60 | The Malta Alternative Investment Funds
Term
Definition
Identified staff
Those categories of staff, including senior
management, risk takers, control functions and any
employee receiving total remuneration that takes
them into the same remuneration bracket as senior
management and risk takers, whose professional
activities have a material impact on the AIFM’s risk
profile or the risk profiles of the AIFs it manages
Internally managed AIFs
An AIF not appointing an AIFM but carrying out
internally the investment management function, for
which it shall at least perform the portfolio
management and risk management tasks apart from
other additional functions that it may perform in the
course of the collective management
MiFID
Directive 2004/39/EC of the European parliament
and of the council of the 21st April 2004 on markets
in financial instruments amending council directive
85/511/EEC and 93/6/EEC and directive 2000/12/EC
of the European parliament and of the council and
repealing council directive 93/22/EEC
Open-ended AIF
An AIF which allows the right to redeem interest at
least once a year with redemption at a price which
does not vary significantly from the net asset value
per share of the AIF.
Professional investor
An investor who possesses the experience, knowledge
and expertise to make its own investment decisions
and properly assess the risks that it incurs including :
entities authorised or regulated to operate in the
financial markets; large undertakings satisfying at
least two of the following criteria: balance sheet total
€20m; net turnover €40m; own funds €20m; and/or
National and regional governments, public bodies that
manage public debts, central banks, international and
supranational institutions (e.g., World Bank)
Retail investor
An investor who is not a professional investor
The Malta Alternative Investment Funds | 61
Term
Definition
Shares or units
Shares in an investment company, units in a unit trust,
or any other form of representation of the rights and
interests of participants in an investment fund.
Special Purpose Vehicle/ SPV
A legal entity set up for a specific purpose by another
entity (i.e., the originator)
UCITS directive
Directive 2009/65/EC of the European parliament
and of the council of 13 July 2009 on the
coordination of laws, regulations and administrative
provisions relating to undertakings for collective
investment in transferable securities (UCITS)
62 | The Malta Alternative Investment Funds
18 Annex
Annex 1 - Cooperation agreements for the purpose of the AIFM directive
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Albanian Financial Supervisory Authority
Alberta Securities Commission, Canada
Australian Securities and Investments Commission
Autorité des marchés financiers, Québec
Bermuda Monetary Authority
Board of Governors of the Federal Reserve System, United States of America
British Columbia Securities Commission, Canada
British Virgin Islands Financial Services Commission
Capital Markets and Securities Authority of Tanzania
Capital Markets Authority of Kenya
Cayman Islands Monetary Authority
Comissão de Valores Mobiliários, Brazil
Commodity Futures Trading Commission, United States of America
Conseil Déontologique des Valeurs Mobilières, Morocco
Dubai Financial Services Authority
Financial Services Agency of Japan
Financial Services Commission of Mauritius
Financial Supervision Commission of the Isle of Man
Guernsey Financial Services Commission
Hong Kong Securities and Futures Commission
Israel Securities Authority
Jersey Financial Services Commission
Labuan Financial Services Authority
Ministry of Agriculture, Forestry and Fisheries of Japan
Ministry of Economy, Trade and Industry of Japan
Monetary Authority of Hong Kong
Monetary Authority of Singapore
National Banking and Securities Commission of the United Mexican States
Office of the Comptroller of the Currency, United States of America
Office of the Superintendent of Financial Institutions, Canada
Ontario Securities Commission, Canada
Republic of Srpska Securities Commission
Securities and Commodities Authority of the United Arab Emirates
Securities and Exchange Board of India
Securities and Exchange Commission, United States of America
Securities and Exchange Commission of Pakistan
Securities and Exchange Commission of the Republic of Macedonia, Former Yugoslav Republic of Macedonia
Securities and Exchange Commission of Thailand
Securities Commission of Malaysia
Securities Commission of the Bahamas
Securities Commission of the Republic of Montenegro
Swiss Financial Market Supervisory Authority (FINMA)
The Malta Alternative Investment Funds | 63
Contacts
Asset Management
Ronald Attard
[email protected]
Karl Mercieca
[email protected]
Assurance
Anthony Doublet
[email protected]
Christopher Portelli
[email protected]
Tax
Christopher Naudi
[email protected]
Robert Attard
[email protected]
Valuation and Business Modeling
Chris Meilak
[email protected]
Ernst & Young Limited
Regional Business Centre
Achille Ferris Street
Msida MSD 1751 Malta
Tel: +356 2134 2134
Fax: +356 2133 0280
Email: [email protected]
A technical guide
© 2015 EYGM Limited. All Rights Reserved.
January 2016
The Malta Alternative
Investment Fund
Manager
A technical guide
© 2015 EYGM Limited. All Rights Reserved.
November 2015
The Malta UCITS
Fund
A technical guide
© 2015 EYGM Limited. All Rights Reserved.
November 2015
For further information, we recommend our technical fund
guide entitled “The Malta Alternative Investment Fund
Manager – A technical guide.” The guide provides an
overview of the Malta asset manager regime, how it is
impacted by the Alternative Investment Fund Managers
directive and a summary of the regulations to the formation
and operation of such asset managers in Malta.
Further reference
The Malta Professional
Investor Funds
For further information, we recommend our technical fund
guide entitled “The Malta Professional Investor Funds — A
technical guide.” The guide provides an introduction to one
of Malta’s primary investment fund structure, how it fits
within the scope of the Alternative Investment Fund
Managers directive and a summary of the regulations to the
formation and operation of such investment funds in Malta.
For further information, we recommend our technical fund
guide entitled “The Malta UCITS Funds — A technical guide.”
The guide provides an introduction of the UCITS brand and
how it fits within the scope of the UCITS directive. It also
provides an overview to Malta as a center for these types of
investment funds, a summary of the regulations to the
formation and operation of UCITS brand investment funds in
Malta.
The Malta Professional Investor Funds | 43
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