The Malta
Professional
Investor Funds
A technical guide
June 2016
Foreword
It is my great pleasure to welcome you to our 2016 edition of
‘The Malta Professional Investor Funds – A technical guide.’
Professional Investor Funds are one of Malta’s primary
investment fund vehicle for all types of professional and
sophisticated investors. The PIF structure aims to provide a
regulatory framework which is both robust and simultaneously
adaptable to allow managers and promoters to innovate and to
develop new products to meet the changing needs of the
market.
Malta has adopted a lighter regulatory regime for de minimis
Alternative Investment Fund Managers managing PIFs which,
like Alternative Investment Funds, are promoted to professional
investors, but which, unlike AIFs, do not fall within the scope of
the full AIFMD directive regime. Falling outside of the scope of
the AIFM directive, de minimis AIFMs may avail themselves of
existing EU member states’ national private placement regimes
in order to market PIFs, insofar such regimes are retained by
the respective EU member states.
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 whilst
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 PIF regime and how it fits
in light 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 Professional Investor Funds
In this report
Malta’s key success factors
2
01
Professional investor funds
4
02
Requirements of a PIF
6
Forward 03 Setting up and running a PIF
Professional Investor Funds
01
04of a PIFInvestment restrictions
Requirements
02
Setting up and running a PIF
03
05 Key service providers
Investment Restrictions
04
Key service06
providers
05
Authorisation
06
07
8
14
16
Authorization
22
Salient features of PIFs
24
Salient features of PIFs
07
Distribution of PIF products
08
08 Distribution of PIF products
26
PIF structures
09
09
PIF structures
Fund information and reporting obligations
10
Admissibility
for Listing
11
Fund information and reporting obligations
10
Taxation
12
11
28
32
Admissibility for listing
34
Taxation
36
13
How can we help you?
38
14
Glossary
40
How can we help you?
13
Glossary 12
14
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 Professional Investor 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 Professional Investor Funds | 3
01 Professional
investor funds
1.1
The Professional investor fund
regime in brief
The Professional Investor Fund (PIF) is a Maltese
regulated branded investment fund for professional
and sophisticated investors.1
Some key characteristics of the PIF regime:
• A regulated EU structure
• Suitable for all investment strategies — including
traditional and alternative — and all asset classes
• Three different classifications — experienced,
qualifying and extraordinary — depending on the
proposed target investors (refer to Section 3.3)
• Flexible regulatory regime since PIFs are not
intended for the general public but for
professional or high net worth investors, they are
not burdened with the restrictions usually imposed
on retail funds
• 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
• Fast-track licensing process
• Possibility of internally managed (self-managed)
PIFs
1.2
A collective investment fund adapted
to any type of investment fund
project
As there are no restrictions on the types of eligible
assets, PIFs may invest in a wide range of underlying
investments including:
1
Subject to the Investment Services Act, 1994
4 | The Malta Professional Investor Funds
• Traditional funds:
• Equity
• Fixed income
• Mixed
• Hedge funds
• Real estate funds, including direct funds and
infrastructure funds (see Section 9.2)
• Private equity funds
• Loan funds (see Section 9.4)
• Thematic funds:
• Specific segments, such as sustainable,
socially responsible, ethical, environmental,
energy, technology, natural resources and
commodities
• Exotic assets:
• Tangible assets including luxury goods, such
as art objects, jewelry, expensive alcohols
(wines and spirits)
• Intangible assets such as patents or other
intellectual property rights
PIFs may be used to create funds with different
characteristics including:
•
•
•
•
•
Direct and indirect funds
Exchange traded products
Structured products
Fund of funds
Master-feeder funds
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.
The Malta Professional Investor Funds | 5
02 Requirements
of a PIF
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
PIFs are a special class of investment funds which fall
within the provisions of the Act. The primary objective
of a PIF must be the collective investment of capital
acquired by means of an offer of units for
subscriptions, 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
• Shares are, or have been, or will be issued
continuously or in blocks at short intervals
PIFs which are not promoted to retail investors and
which does not have the characteristics listed in
paragraph (a) shall only be deemed to be an
investment fund if the PIF, in specific circumstances
as established by regulations under the Act, is
exempted from such requirement and satisfies any
other conditions that may be prescribed.
Every license for a PIF is subject to Standard License
Conditions (SLC) which are set out in full in the
investment services rules for professional investor
funds.
2 Investment Services Act, 1994
3 Directive 2011/61/EU on Alternative Investment Fund Managers
6 | The Malta Professional Investor Funds
2.2
Implications under the alternative
investment fund managers (AIFM)
directive
A PIF is an investment fund which is exempt from the
relevant requirements of the AIFM directive3
provided that the PIF is either:
• Not leveraged and without redemption rights
for a period of 5 years, and with aggregate
assets under management below €500m
Or
• Has assets under management, including any
assets acquired through the use of leverage,
not exceeding €100m
The AIFM directive however provides “small” PIFs the
possibility to opt for the full application of the directive,
in which case would fall out of scope of this technical
guide. For more information kindly see our technical
guide on Malta Alternative Investment Funds.
2.3
The investment services rules for
PIFs
Every license for a PIF is subject to SLCs which are set
out in full in the investment services rules for
professional investor 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 Professional Investor Funds | 7
03 Setting up
and running of a PIF
3.1
PIFs structures
A PIF 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
PIFs may be set up as limited liability companies and
may be established either as open-ended investment
companies (SICAVs) or close-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 Act5. 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 PIF, the value of a unit reflects the NAV
of the PIF. SICAVs can be formed as Incorporated Cell
Companies, in terms of the Companies Act6 having
each incorporated cell within an incorporated cell
company as a limited liability company endowed with
its own legal personality.
4
INVCOs7 are governed by the Companies Act8 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.
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
4 Investment Companies with Variable Share Capital
5 Companies Act (Chapter 386 of the Laws of Malta)
6 Companies Act (SICAV Incorporated Cell Companies) Regulations, 2010
8 | The Malta Professional Investor Funds
of its investments; the distribution of the company’s
capital profits is prohibited by its memorandum and
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 PIF.
3.1.2
Contractual funds
Contractual funds are governed by the Investment
Services Act established by means of a deed of
constitution entered into for such purpose by the
manager and the custodian of such a PIF.9 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 PIF. A
contractual fund may set up one or more special
purpose vehicles, which would be a company and
through which the PIF 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.
7 Investment Companies with Fixed Share Capital
8 Companies Act (Chapter 386 of the Laws of Malta)
9 Investment Services Act (Contractual Funds) Regulations, 2011
3.1.3
Unit trusts
PIFs can also be constituted by a trust deed between a
management company and a trustee. They are
governed by the Trusts and Trustees Act10 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. 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. The graphic design featured below
illustrates the flexibility of a multi-fund PIF.
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.11
3.2
Multi-fund PIFs and share or unit
classes
Multi-fund PIFs (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.
Schematic of a possible multi-fund, multiple share or unit class structure12
MULTI-FUND
Multi-fund PIF
UCITS
PIF Sub-funds,
each with specific
features
Share or unit
classes, each with
specific features
US equity
UK equity
Fee structure
(combination of
entry, exit &
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.)
10 Trust and Trustees Act (Chapter 331 of the Laws of Malta)
11 Limited partnership divided into shares in terms of the Companies Act (Chapter 386 of the Laws of Malta) and the Companies Act (Amendment of Tenth Schedule)
Regulations, 2011
12 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.
The Malta Professional Investor Funds | 9
Multi-fund PIFs may be created provided that the
constitutional documents expressly permit it and the
offering documentation specifies the investment
policy, objectives and restrictions specific to each
sub-fund. The multi-fund PIF may also elect, subject to
relevant disclosure in its constitutional documents, to
have the assets and liabilities of each sub-fund
comprised in the PIF treated for all intents and
purposes of law as a patrimony separate from the
assets and liabilities of each other sub-fund of the PIF.
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. Fund Promoters may consequently
retain in the same PIF those investors who wish to
change their investment strategy.
Multiple share or unit classes may also be created
within a PIF or, in the case of a multi-fund PIF, within a
sub-fund.
While the investment objectives, policies and
restrictions are defined at the level of the PIF 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 ISIN (International
Security Identification Number)) would be attributed
at the level of the share or unit class.
10 | The Malta Professional Investor Funds
3.3
Eligibility of investors
Investors in PIFs must be able to demonstrate that they possess the required expertise, experience and knowledge to
make investment decisions and assess their risk. Such investors must satisfy at least one of the following conditions
depending on the type of PIF they will be investing in.
Experienced investors
Qualifying investors
Extraordinary investors
• 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
• Person (or entity) must have net
assets in excess of €750,000. If
the PIF 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
• Person (or entity) must have net
assets in excess of €7.5m.
If the PIF 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 the
acquisition or disposal of funds or
instruments with similar risk
profiles to that of the proposed PIF
• Reasonable experience in investment
decisions on funds with a similar risk
profile and in instruments of the
proposed PIF
• The investor is a PIF promoted to
extraordinary investors
• Having carried out investment
transactions of a significant size at
a certain frequency
• A senior employee or director of
service providers to the PIF
• A senior employee or director of
service providers to the PIF
• Any other appropriate justification
• 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
• 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
• An entity with at least €3.75m
under discretionary management
investing on its own account
• The investor is a PIF promoted to
qualifying or extraordinary investors
• A relation or close friend of the
promoters limited to 10 persons per
PIF
The Malta Professional Investor Funds | 11
3.4
Regulatory characteristics and requirements
The following table presents a summary of other regulatory characteristics and requirements of PIFs
PIFs targeting
experienced investors
PIFs targeting
qualifying investors
PIFs 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
Use of sub-funds
Yes
Yes
Yes
Multi share classes
Yes
Yes
Yes
Investment restrictions
Specific investment
restrictions (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
Section4.1)
Leverage restrictions
Up to 100%
No
No
Yes
• Allowed to invest up to
50% of its assets into
any sub-fund within
the same PIF
• 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 PIF
• 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
Cross Sub-Investments
12 | The Malta Professional Investor Funds
No
PIFs targeting
experienced investors
PIFs targeting
qualifying investors
PIFs targeting
extraordinary investors
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
The Malta
Professional
InvestorFunds
Funds | | 13
07
The Malta
Professional
Investor
04 Investment
restrictions
4.1
Investment restrictions
targeted which restrictions are to be complied with by
each sub-fund of a multi-fund PIF structure.
The MFSA’s investment services rules for PIFs
provides relevant information and clarifications on
the investment restrictions that must be adhered to
by PIFs depending on the type of investor being
The following is a summary of the investment
restrictions applicable to PIFs targeting the different
types of investor:
PIFs targeting experienced investors
Instrument
Restriction
Ancillary cash
• The PIF 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 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 30% 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 be
increased 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 CIS
• No restriction applicable with respect to investment in a single investment fund provided it
qualifies as a UCITS or other open-ended investment fund subject to the equivalent risk
spreading requirements applicable to the PIF
• Up to 30% of asset in any single investment fund not qualifying as UCITS or as other
investment fund defined in the preceding point
• The PIF is to invest in at least 5 hedge funds in case the PIF is a fund of hedge funds
EY supports asset managers and investment
fund 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 Professional Investor Funds
PIFs targeting experienced investors - continued
Instrument
Restriction
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 PIF has a contractual netting agreement with the
counterparty
Feeder fund
• The Master PIF shall satisfy the leverage restrictions of the PIF 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 PIF is to invest in at least 5 different properties in case it invests solely in immovable
property
• The PIF 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 PIFs 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
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 PIF
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 PIF cannot enter into cross sub-fund investments (if case the PIF is established as a
multi-fund)
PIFs targeting qualifying investors/extraordinary investors
Instrument
Restriction
Cross sub-fund investment
• The PIF may invest in shares of one or more sub-funds within the same PIF provided that
this is permitted in the constitutional documents and Offering Memorandum of the PIF in
question
• A sub-fund is allowed to invest up to 50% of its assets in another sub-fund within the same
PIF
• The target sub-fund may not itself invest in the sub-fund which is to invest in the target
sub-fund
• Where the Manager of the sub-fund and the manager of the target sub-fund is the same
(or in case affiliated), only one set of management fees (excluding performance fees),
subscription and redemption fees shall be applicable
The Malta Professional Investor Funds | 15
05 Key service
providers
5.1
Typical organization of a PIF
This section outlines the typical organization of a PIF,
summarizes the roles of the main service providers
and outlines the factors impacting the choice of
PIF investment company which has appointed an
asset manager
organizational model. As part of the formation
procedures of a PIF, several service providers must be
appointed. The following diagrams show illustrative
examples (other models may be possible) of the
organization of an PIF.
PIF investment company which has not appointed
an asset manager15
Internally managed
PIF
board of directors
Investment fund
(board of directors)
Asset
manager
Depositary
(if applicable)
Prime broker
Administrator,
registrar,
transfer agent
Investment
committee
Auditor
Prime broker
Administrator,
registrar,
transfer agent
Depositary
Portfolio managers
or
Investment company
Third-party
Investment manager
Auditor
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.
15 See Section 5.8 for further detailed information on internally managed or self-managed PIFs.
16 | The Malta Professional Investor Funds
The Malta Professional Investor Funds | 17
The principle duties of the service providers are as
follows:
5.2
Asset manager
A PIF may only appoint a De minimis manager as its
asset manager, which is exempted from the full scope
of the AIFM directive. The asset manager is
responsible to manage the PIF (or certain sub-funds of
the PIF) with respect to the investment, divestment
and reinvestment of the assets of the PIF. It is a
delegate of the PIF and it must be duly licensed or
authorised to provide such services provided that the
asset manager shall qualify as a de minimis AIFM,
being exempted from the full scope AIFM directive.
The asset manager’s role — which may be undertaken
by one or more parties — ordinarily comprises:
• Overall control of the operation of the PIF (which
may not be necessary in corporate funds with a board
of directors)
• The role of the investment manager carrying out the
day-to-day investment management. The asset
manager may also assume the role of the
administrator.
The asset manager may either have an established
place of business in Malta or a recognized jurisdiction.13
Not all PIFs are required to appoint an external asset
manager (See Section 5.8).
5.3
PIFs are generally not required to appoint an
investment advisor. Furthermore, the proposed
investment advisor need not be established and
regulated in Malta. When the investment advisor is
appointed directly by the manager rather than by the
PIF such investment adviser is not subject to the
MFSA’s approval and no eligibility criteria apply.
5.4
Custodian/depositary
A PIF targeted to experienced investors is to appoint
a custodian or depositary or prime broker (See Section
5.6) who is responsible for the safe keeping of the
assets of the PIF and for undertaking monitoring
duties over the PIF’s asset manager. The custodian or
depositary should be independent from the asset
manager and need not be established and regulated in
Malta subject it is duly licensed and authorized to
provide such services.
Although the MFSA recommends that PIFs promoted
to qualifying or extraordinary investors appoint a
custodian or depositary, under the current MFSA’s
investment services rules there is no obligation for
such PIFs to appoint a custodian or depositary. Where
no custodian is appointed, responsibility for the
establishment of proper arrangements for the safe
keeping of the PIF’s assets remains with the directors/
general partner(s)/trustee and officers of the PIF.
The PIF will be required to outline the arrangements it
will be put in place to ensure adequate safekeeping of
its assets.
Investment advisor
The investment advisor advises the asset manager or
the PIF with respect to the investment, divestment and
reinvestment of the assets of the PIF. The investment
adviser will not have any discretion with respect to the
investment and re-investment of the assets of the PIF.
13 The Regulator of the jurisdiction in question having enacted a (bilateral) Memorandum of Understanding with the MFSA in the area of Securities supervision
18 | The Malta Professional Investor Funds
5.5
Administrator
Administrative services in relation to the PIF may be
carried out by a fund administrator. The administrator’s
role ordinarily covers, amongst other things:
•
•
•
•
•
•
•
•
•
•
Liaison with shareholders
Calculation of NAVs
Reconciliations
Pricing the investment portfolio
Payment of bills
Preparation of financial statements
Fund accounting
Performance reporting
Compliance reporting
Preparation of contract notes
The role of the administrator may be carried out
either by:
5.6
Prime broker
The PIF may appoint one or more prime brokers.
Before entering into relevant agreement with a prime
broker, the PIF 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.
5.7
Auditor
The PIF shall appoint an auditor approved by the
MFSA and the PIF shall obtain from its auditor a
signed letter of engagement defining clearly the
extent of the auditor's responsibilities and the terms
of appointment.
• A separate administrator appointed directly by the
PIF (in which case the asset manager’s role would be
limited to the day-to-day management of the PIF’s
portfolio)
Or
• The asset manager itself, after it has been delegated
with such duties by the PIF
Or
• A separate administrator appointed by the asset
manager in the instance that the latter has been
delegated with such duty by the PIF but has opted to
outsource it to a third-party
The Malta Professional Investor Funds | 19
5.8
Internally managed or self-managed
PIFs
A PIF may opt not to appoint a third-party investment
manager and thus the PIF will be carrying out
internally the investment management function. For
the purpose of this section, the term “PIF” shall be
understood to refer to “internally managed or
self-managed PIF.”
5.8.1
Operational arrangements
A PIF should organize 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 board of directors of the PIF would be responsible
for the management of the PIF’s assets which board of
directors may either be directly involved in the
portfolio management function or else shall establish
an in-house investment committee.
5.8.2
Capital requirements
The PIF 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 as an
“initial capital” of €125,000 or $125,000 and that the
net asset value of the PIF is expected to exceed this
amount on an on-going basis.
The PIF would also need to have the adequate and
appropriate human and technical resources that are
necessary for its proper management and to
effectively perform its activities.
Operational setup of a self-managed PIF
Board of directors
20 | The Malta Professional Investor Funds
Or
Responsible for the overall management of the assets of the PIF
The Investment Committee shall:
• Monitor and review the Investment Policy of the PIF
• Establish and review guidelines for the investment by the PIF
• Issue rules and asset selection criteria
• Setting up portfolio structure and allocation parameters
• Make recommendations to the board of directors
Investment
committee
Portfolio
manager
•
Third-party
investment
manager
•
•
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 PIF's offering documentation
The Malta Professional Investor Funds | 21
06 Authorization
Main documents
MFSA
Authorization Process
6.1
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 the licensing of a PIF.
6.2
Post-licensing
•
•
Listing on the official list of
licensed entities
Issue of licence
and proper test, among other things.
• The MFSA will consider the nature of the proposed
PIF and a decision is made regarding which SLCs
should apply. These represent ongoing requirements
which will need to be satisfied by the PIF.
Authorization process and
requirements
A PIF is to obtain authorization and licence from the
MFSA to be able to operate. The approval process for
setting up a new PIF can be divided into three phases:
6.2.1
Preparatory phase
• PIF promoters or asset managers with the
assistance of the advisors, 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.
• PIF 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
22 | The Malta Professional Investor Funds
EY supports asset managers and investment
fund houses with the investment fund setup
and application for authorisation, as well as
restructuring and liquidation.
6.2.2
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, PIF promoters must: [i] finalise
any outstanding issues and [ii] submit signed
final application documents
• A license will be issued once all pre-licensing
issues are resolved
6.2.3
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
In the case of internally managed orself-managed PIFs,
the following additional documents must also be
submitted:
• Personal questionnaire forms, competency
forms and CVs of the individuals responsible
for the asset management function of the PIF
• Investment committee terms of reference
• Confirmations from the Investment committee
members and portfolio managers
• Portfolio delegation agreement (if applicable)
Further details of the operational structure of an
internally managed PIF are outlined in section 5.8.
The MFSA recommends applicants to file an
application only once all constituents of the project
are in final draft form.
The initial application documents to be submitted
should at least include:
• Application form
• Application fee
• A near final draft offering documentation or
marketing documentation
• 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
• Information including personal questionnaire
forms on the qualifying founder shareholders
(holding 10% or more of the voting rights)
including personal questionnaire forms
• Personal questionnaire forms of the individuals
holding the post of directors
• Personal questionnaire forms and competency
forms of the individuals holding the post of
compliance officer and money laundering
reporting officer
The Malta Professional Investor Funds | 23
07 Salient
features of PIFs
7.1
Special purpose vehicles
A Special Purpose Vehicle (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. A PIF (or the asset manager acting
on behalf of the PIF) 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 PIF.
From a regulatory perspective, the MFSA defines an
SPV as being setup by the PIF 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 PIF. 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 PIF.
7.2
Re-domiciliation of PIFs
Maltese legislation allows for the re-domiciliation of
corporate entities, which means that a 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
24 | The Malta Professional Investor Funds
corporate entity.
For a 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 PIF (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 PIF 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.
7.3
Side pocket
Where a PIF 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 PIF 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.
The assets in the side pocket would be separated from
the main pool of assets allowing the PIF 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.
7.5
The manager 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.
PIFs (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 PIF or its asset manager as
investment opportunities arises.
The MFSA permits the use of side pockets provided
that statutory information is disclosed in the PIF’s
constitutional documents and that certain conditions
are satisfied.
7.4
Side letters
The use of side letters allows for greater flexibility to
the PIF or its asset manager to enter into tailored
arrangements with specific investors without the
requirement to amend the conditions disclosed in the
PIF’s constitutional documents.
To create a side letter, the following conditions are to
be met:
• The side letter must be approved by the PIF’s board
of directors prior to being issued
• Any side letter issued must be retained at the
registered office of the PIF and is to be available for
inspection by the MFSA during compliance visits
Draw downs
Any PIF 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
PIF
• 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”14 to
existing investors on committed funds, the
nature of which to be disclosed in the PIF’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
• Copies of the written agreements are to be
held at the PIF’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 memorandum 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
14 Companies Act (Investment Companies with Variable Share Capital) Regulations (Legal Notice 241 of 2006, as amended)
The Malta Professional Investor Funds | 25
08 Distribution
of PIF products
PIFs can be marketed to professional investors under
the national private placement regimes (i.e., subject to
national requirements) (NPPRs) where such regimes
exist. The NPPRs allows for the distribution of PIFs in
EU member states as the passport regime of the AIFM
directive is not applicable since PIF products fall
out-of-scope of the directive.
Since De minimis AIFMs are not required to comply
with the full requirements of the AIFM directive, such
AIFMs in distributing their PIF product have at least
the following options:
• Continue to market the PIF under the NPPRs,
where permitted
Or
• “Opt-in” – i.e., voluntary comply with the
requirements of the AIFM directive (in which
case the PIF is to be restructured as an AIF) —
and benefit from the passport regime
In most key distribution markets, national distribution
rules permit private placement. NPPRs permit
participants to buy and sell financial instruments,
including units of PIFs, to each other without having
to comply with rules that would usually apply when
the same instrument are offered to retail investors.
Typically, NPPRs may provide exemptions from
national public distribution regimes for distribution of
funds meeting certain criteria to:
• A limited number of investors
• A specific type of investor e.g., professional or
qualified investors, or high net worth individuals
• Investors subscribe a minimum amount
26 | The Malta Professional Investor Funds
The Malta Professional Investor Funds | 27
09 PIF
structures
A major benefit of PIFs is that the MFSA’s investment
services rules do not impose restrictions on the type
of eligible assets a PIF may invest in other than
general investment restrictions pertaining to the
diversification of risk in relation to PIFs targeting
Experienced investors – who are more akin to retail
investors.
The MFSA has still issued guidance notes on different
types of structures a PIF may be established as. This
section provides a brief outline of the requirements
relating to PIFs being structured as a property fund,
money market fund, private equity fund, loan fund
and as a shariah-compliant fund.
9.1
Recognized incorporated cell
companies (RICC)
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 recognised
incorporated cell company (RICC) .
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 PIF, 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 UC. The
benefit of the RICC structure is that it allows for
several types of licensed CISs 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.
Requirements applicable to property (real estate) funds
Type of investors
Qualifying
Investment objective
Investment
restrictions
Main objective is investing
in immovable property15
General investment
restrictions
• Up to 25% in any one single
immovable property
• Must invest in at least 5
different properties
• May not invest up to 100% of
total assets in any single
property fund
• No investment restrictions
Leverage
• Open-ended – No leverage is
permitted
• Closed-ended – Up to 100%
of NAV
• Open-ended – Up to 50% of
NAV
• Closed-ended – No
restriction
Borrowing (for liquidity purposes)
• No restriction
• No restriction
General investment restriction
• Between 10% —20% of NAV may be invested in property
• No other investment restriction shall apply other than the standard PIF
investment restrictions
Limited exposure to direct/
indirect investment in properties
Experienced
15 “Main objective” is to be interpreted as the PIF’s main investment objective being to invest in the property as its main asset class (>20% of NAV)
28 | The Malta Professional Investor Funds
9.2
Property (real estate) funds
The MFSA had issued a specific guidance note on PIFs
structured as property funds. The guidance note
discloses that any PIF targeting Extraordinary
investors falls outside the scope of this policy and that
any such PIF established as a property fund would be
subject to the general investment restrictions
applicable to PIFs targeting extraordinary investors.
The table below provides a brief summary of PIFs
established as a property fund targeting
experienced or qualifying investors.
9.3
Money market funds
lay down the specific requirements of the MMF’s
eligible assets, investment regulations, valuation rules
and rules relating to the assessment of any investment
in money market instruments.
Under these regulations, a MMF is a PIF which invests
in money market financial instruments, offering
returns in line with money market rates.
These regulations also distinguish between a
Short-term MMF and a MMF. Also, a PIF is not
allowed to include, as part of its name, the term
“money market fund” or similar unless it adheres with
the MFSA’s supplementary conditions.
Both short term MMFs and MMFs must comply with
general guidelines and also have to comply with
specific guidelines relating to their category.
The MFSA had issued supplementary conditions for
PIFs setup as a Money Market Fund (MMF) in
accordance with CESR’s guidelines on a common
definition of European money market funds16 which
Requirements applicable to MMF
Short-term MMF
MMF
Objective
Having the primary investment objective of maintaining the principal of the PIF 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
• Other investment funds that comply
of a short-term money market fund
with the definitions of a short-term
money market fund or a money
market fund
A MMF must indicate in its offering documentation whether it is a short term MMF or a MMF. In both cases, specific
disclosure is required to draw the attention to the difference between the MMF and investment in a bank deposit. It
should be clear, for example, that an objective to preserve capital is not a capital guarantee.
21 CERS/10-049
The Malta Professional Investor Funds | 29
9.4
Loan funds
gives rise to a direct legal relationship between the PIF
(as lender) and the borrower.
A PIF is allowed to “invest through loans” provided
that it constitutes either (i) the direct origination of
loans by the PIF or (ii) the acquisition by the PIF of a
portfolio of loans or a direct interest in loans which
The requirements for PIFs structured as “Loan Funds”
are summarised in the table below.
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”17
• Households and individuals are not eligible to receive any financing from the PIF
• The PIF is to be structured as a “closed ended” fund
• (In case of multi-fund PIFs) 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 3.4)
• May engage in “foreign currency lending” subject to the high level principles in MFSA rule 1
of 2012 on foreign currency lending18
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.
17 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
18 The term “foreign currency lending” means lending in any currency other than the legal tender of the country in which the borrower is domiciled.
30 | The Malta Professional Investor Funds
PIF structured as a “Loan Fund” also have additional
specific requirements imposed on the key service
providers.
9.4.1
Asset manager
The Asset Manager shall be responsible for the
management of the PIF with respect to the investment,
divestment and reinvestment of the assets of the PIF
and its risk management. Due to the underlying assets
of the PIF (i.e. loans), the manager is expected to have
the necessary knowledge and experience in area of
granting of loans including credit assessment, credit
provisioning monitoring and control of exposure (the
same requirements shall apply in case of “internally
managed” PIFs).
9.4.2
Custodian or depositary
A Custodian/Depositary must be appointed to be
responsible for the safe keeping of PIF’s assets of the
PIF. This is an additional requirement to PIFs targeting
Qualifying or Extraordinary investors as referred to
Section 3.4.
9.5
Shariah-compliant funds
The MFSA issued guidance notes to assist promoters
establishing PIFs to be Shariah-compliant in terms of
the local regulations and the Act.19
PIFs may generally be structured as either:
Shariah-compliant equity fund; Ijarah fund; or
Murabaha fund. Other structures may also be
considered by the MFSA provided that such structures
are compliant with Shariah law.
Although Shariah-compliant funds are generally
subject to the same rules and regulations applicable to
all of the PIFs established in Malta, it should be noted
the following:
• Risk-spreading principles need to be followed unless
this is waived or is not a requirement in terms of the
proviso to the definition of “collective investment
scheme” in the Act
• The managing body of the PIF (e.g., board of
directors) is responsible to ensure that the relevant
Shariah principles and requirements as disclosed in all
information provided to investors are adhered by the
PIF
• Extra-financial criteria must comply with all prevailing
regulatory and statutory requirements which are
mainly any additional Shariah guidelines which the PIF
will adopt
A PIF compliant with Shariah law and principles is to
appoint a Shariah advisory board in addition to the
key service providers (Section 5 refers). In the
governance structure of a PIF, the Shariah advisory
board can be defined as a committee composed of
Islamic Shariah scholars acting as advisors to the PIF
to ensure that transactions and/or activities carried
out on behalf of the CIS are in compliance with
Shariah principles and guidelines.
The asset manager (or an “internally managed”
PIF) is to appoint a Shariah advisory board to be
composed of at least two “internationally recognized
Islamic Shariah scholars” to ensure that the PIF meets
Shariah compliance standards in the management of
its assets. Members of the Shariah advisory board are
to be independent from the asset manager (or the
portfolio management function in a “internally
managed” PIF). A legal entity may be appointed as
Shariah advisor, which in turn would appoint a Shariah
advisory board.
19 MFSA guidance note for Shariah compliant funds
The Malta Professional Investor Funds | 31
Investment fund
10 information and
reporting obligations
10.1 Offering document
10.2 Financial reporting
All PIFs must have an offering document for which
the PIF and/or its manager are to be responsible. The
offering document must provide sufficient
information to enable a potential experienced,
qualifying and/or extraordinary investors to make an
informed investment decision of the investment
proposed to them and, in particular, of the risks
attached thereto.
10.2.1 Annual report
The offering document of a PIF would ordinarily
include the following information:
• A balance sheet or a statement of assets and
liabilities — including details of accounting and
valuation policies
• Number of shares in circulation
• NAV per share and mid-market price per share
• An analysis of the portfolio by economic,
geographic, currency, or other appropriate
measure, such analysis should show the value
of each investment category as a percentage
of net assets and of total scheme assets
• Notional exposure relating to each position in
FDI
• A statement of the change in composition of
the portfolio
• A statement of the developments concerning
the assets of the scheme during the period
• A comparative table covering the last three
accounting periods, including the total NAV of
the scheme and the NAV per unit or share
• Investment strategy, objective and details of how
any changes may be implemented
• Information on where any master PIF is established
and in the case of fund of fund 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 (asset
manager, depositary (if applicable), auditor,
prime broker etc., their obligations, including
depositary liability and investors’ rights)
• Valuation procedures
• Fees and expenses to be borne by investors
• Provisions to ensure fair treatment of investors,
together with details of any preferential treatment
• Liquidity management procedures, including how
subscriptions and redemptions are processed
PIFs are required to produce an annual report
including, audited financial statements, which should
be published and submitted to the MFSA within 6
months of the end of the accounting period.
The annual report must include:
EY supports asset managers and investment
fund houses with the drafting of investment
fund documentation including prospectuses
and other investor information, preparation
of financial reports, and periodic reporting
to the supervisory authority.
32 | The Malta Professional Investor Funds
• Details of the category of transactions of the
resulting amount of commitments
• Report by the investment manager on the
activities of scheme during the period
• A report by the custodian/depositary (PIFs
targeting experienced investors) on whether
the PIF has been managed:
• In accordance with the limitations imposed on
the investment borrowing powers of the
Scheme by the constitutional documents and
by the MFSA
• In accordance with its constitutional documents
and its license conditions
• Names and addresses of all functionaries
• Details of significant changes to the offering
memorandum during the period
• A statement regarding breaches of license
conditions and/or regulatory sanctions
10.2.2 Half-yearly report
PIFs are not required to produce a half-yearly report.
Should such PIFs opt to produce one, this should be
published and submitted to the MFSA within 2 months
of the end of the accounting period.
10.2.3 Directors confirmation
Copies of annual and half-yearly reports submitted
to the MFSA should be accompanied by a directors’
confirmation to the effect that to the best of their
knowledge, the report is complete and accurate in all
material respects and conforms to MFSA’s
requirements in terms of the PIF’s license conditions.
10.2.4 Regulatory statistical returns
The Central Bank of Malta requires certain PIFs (which
exclude certain pension funds and money market
funds) to submit specific statistical information.
10.2.5 Compliance report
The compliance officer of a PIF must prepare a
compliance report at least every six months and will
have to be presented to the senior officials (directors,
general partners, trustee, manager, as applicable).
Such report must also be made available to the MFSA
when compliance visits are carried out.
10.2.6 Reporting obligations to competent
authorities — AIFM directive implications
The AIFM directive has introduced new regulatory
reporting obligations applicable to PIFs which
requirements are determined by the type of the
investment manager being appointed, that is an EU or
non-EU AIFM or a de minimis AIFM. In this regard,
AIFMs are to provide a multitude of information to the
competent authorities, on a periodic basis.
This section is to provide a summary of the reporting
obligations transposed from the AIFM directive.
For the purpose of the table below, we shall only
highlight the reporting obligations related to PIFs
which fall below the AIFM directive exemption
threshold.20
Summary of reporting obligations
PIF
Regulatory framework
Reporting obligations
Frequency
Unleveraged
De minimis AIFM
• Main instruments in which the PIF is trading
• Principal exposures and most important concentrations
Annual
Leveraged
De minimis AIFM
• Same reporting obligations as for “unleveraged” PIFs
Annual
20 Total AUM below the threshold of either €100 or €500m – article 3(2) of the AIFM directive
The Malta Professional Investor Funds | 33
11 Admissibility
for listing
11.1 Introduction
In certain cases, investors, in particular institutional
investors, will only be permitted to purchase
securities (generally shares or units) issued by
investment funds that are listed on a recognized or
regulated stock exchange. As a result, a stock
exchange listing will often be important to accessing
certain distribution channels.
The listing authority shall notify its decision to
approve or refuse an application including the
approval or refusal of the prospectus or offering
memorandum before the end of the period of 10 days
beginning with the date on which the application is
received, which time limit may be extended to 20
working days if the public offer involves units issued
by the PIF which does not have any units admitted to
trading on a regulated market and which has not
previously offered units to the public. In addition,
once the PIF is listed, it shall comply with the
continuing obligations at all times.
11.2 Application procedure for PIFs
seeking authorization and
admissibility for listing
A formal application should be lodged with the Listing
Authority in accordance with the application form as
outlined in the listing rules at least 5 business days
prior to the date of hearing of the application by the
listing committee of the listing authority.
Furthermore, the following requirements shall also be
satisfied:
• The application form shall be duly completed and
signed by a duly authorized representative of the
PIF and the sponsor
• In the case of any other legal form, the application
form shall also be signed by a duly authorized
officer for and on behalf of the PIF and if
appropriate the management company
• Copy of the prospectus or offering memorandum
(including relevant offering supplements were
applicable) marked to indicate where the relevant
listing requirements have been included
• Any other documents or information which the
listing authority shall require
34 | The Malta Professional Investor Funds
EY listing services:
• 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 Professional Investor Funds | 35
12 Taxation
12.1 Introduction
The Maltese tax system for PIFs is highly beneficial for
both scheme and investor, while Malta’s corporate tax
regime makes the country the ideal location for
management companies and other service providers
to base operations.
12.2 Taxation on PIFs
The tax treatment of PIFs 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 funds established in Malta
and have over 85% of assets which are situated in
Malta. Such PIFs 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%.
investors are not subject to tax in Malta.
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.
12.3 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.
12.4 Tax treatment from highly-qualified
professionals
Non-prescribed funds – are any investment funds
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%).
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.
Subject to certain conditions, capital gains realized on
transfers or redemption of scheme 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
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.
36 | The Malta Professional Investor Funds
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 Professional Investor Funds | 37
13 How can
we help?
13.1 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.
13.2 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
38 | The Malta Professional Investor Funds
• Providing our clients access to our perspective on
current and emerging trends, industry issues, and
regulation
13.3 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 Professional Investor Funds | 39
14 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
Approved jurisdiction
A jurisdiction including EU/ EEA member states and
jurisdiction which competent authority has signatories
to a multilateral or bilateral memorandum of
understanding with the MFSA covering the
supervision of securities and markets
Closed-ended PIF
An AIF which is not an open-ended PIF
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
40 | The Malta Professional Investor Funds
Term
Definition
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 PIF
A PIF 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
Shares
Shares in an investment company, units in a unit trust,
or any other form of representation of the rights and
interests of participants in a collective investment
scheme.
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) (recast)
The Malta Professional Investor Funds | 41
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.
November 2015
The Malta Alternative
Investment Fund
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 Funds — A
technical guide.” The guide provides an introduction to Malta
as a center for investment funds structured as an Alternative
Investment Fund, 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.
Further reference
The Malta Alternative
Investment Fund
Manager
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.
EY | Assurance | Tax | Transactions | Advisory
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about our organization, please visit ey.com.
© 2016 EYGM Limited.
All Rights Reserved.
ED None
This material has been prepared for general information purposes only and is not intended to
be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for
specific advice.
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