The Malta Financial Services Authority recently announced that the number of hedge funds licensed in Malta in 2009 continued to grow despite the annus horribilis in the financial markets.
Supported by a substantial increase in fund administration capacity, Malta is now recognised as a fully-fledged hedge funds domicile allowing cost-effective access to the European and international markets. The robust but flexible regulatory framework, supervised by a pragmatic and prompt single regulatory authority, makes the island a domicile of choice for the establishment of hedge funds. Not only are local set-up and servicing costs much lower than in other European jurisdictions such as Ireland and Luxembourg, but the processing of licensing applications is quicker.
In November 2007 Malta was the first EU Member State to introduce UCITS III and has fully implemented MiFID. More recently, Malta is also seeking to attract Sharia-compliant funds and operators in the financial services sector as part of the Government’s strategic commitment to continuing on the road to making Malta a centre of excellence in financial services, the fastest growing sector of the Maltese economy. The island’s cultural and historical links with the Middle East will also help attract more Middle Eastern players to enter European markets through Malta.
Maltese hedge funds take the form of ‘Professional Investor Funds’ or ‘PIFs’, most commonly set up as an investment company with variable or fixed share capital with a multi-fund or umbrella fund structure, divided into three categories (targeting investors who must satisfy eligibility criteria).
▪ PIFs promoted to ‘Experienced Investors’ – with a minimum investment of €10k or equivalent, are subject to some investment restrictions, may be leveraged up to 100% NAV, must appoint a Custodian and issue an Offering Document;
▪ PIFs promoted to ‘Qualifying Investors’ – with a minimum investment of €75k or equivalent, with no investment restrictions (other than in the case of property funds), unlimited leverage, appointment of a Custodian is not mandatory (provided assets are subject to adequate safekeeping arrangements),and must issue an Offering Document; and
▪ PIFs promoted to ‘Extraordinary Investors’ – with a minimum investment of €750k or equivalent, with no investment restrictions, unlimited leverage, appointment of a Custodian is not mandatory (provided assets are subject to adequate safekeeping arrangements) and can issue a simplified Marketing Document in lieu of a more detailed Offering Document.
PIF’s can be self-managed, usually through an ad hoc Investment Committee of the Board of Directors of the company, or appoint a professional Manager. PIFs may also be structured as limited partnerships or unit trusts.
Other than in respect of income from immovable property in Malta, PIFs and retail collective investment schemes are exempt from Malta tax. Withholding tax at source ranging from 10% to 15% may be payable on certain categories of investment income received from local sources if 85% or more of the PIF’s assets are situated in Malta. There is no Malta tax on dividend distributions or redemption of units in PIFs by non-resident investors.
With more hedge funds domiciling or re-domiciling to Malta, the jurisdiction is also becoming increasingly attractive to fund managers and administrators as one where they can find a highly trained English speaking workforce and low operational costs.
Whether you are the promoter of a hedge fund or a fund management or administration business, Fenech & Fenech Advocates (in conjunction with the Fenlex Group) can assist you in the setting up of the necessary corporate vehicles, preparation of Prospecti and Offering Documents/Memoranda, the drafting and negotiation of agreements with the functionaries of the fund, the regulatory procedures for licensing, and any listing on the local stock exchange.