The globalised environment within which hedge funds operate has been characterised by a tumultuous stock market for the past 18 months.
The globalised environment within which hedge funds operate has been characterised by a tumultuous stock market for the past 18 months. Malta has not remained unaffected by the general decline in the market as a whole, spurred by a general prudence amongst investors.
However, in an environment of uncertainty and a generally cautious outlook, the jurisdiction has withstood the test of a market crisis squarely and has shown a resilience that continues to place the jurisdiction in the forefront of international centres for fund managers.
The combination of its regulatory framework, expertise in audit and legal services and a proactive approach to refining regulation to address new and emerging industry requirements continues to enhance Malta’s reputation as a domicile and service centre for hedge funds.
In the first half of 2009 the Malta Financial Services Authority issued 40 new licences for Professional Investor Funds, up from 34 in the same period of 2008. This sustained momentum in terms of new funds at a time of crisis is the platform for continued confidence in the industry’s medium-term outlook.
The regulatory framework in Malta has not undergone any dramatic changes, particularly for Professional Investor Funds. The approach of the rulebook and of the regulator in this area has always sought to balance the needs of the industry and product innovation and differentiation on one hand, and investor protection and confidence in the standards adopted on the other.
This balanced approach has served well both the jurisdiction as an increasingly attractive domicile and the industry. New regulatory proposals were published in May that would introduce additional restrictions on certain concentrated exposures by funds intended for experienced investors, further accentuating the need for risk spreading.
The new rules would also redefine ‘experienced investor’ and reduce the minimum investment amount for such funds from EUR15,000 to EUR10,000, enabling investors to commit less to each individual fund. The proposals seem to have been well received in the industry and are not expected to have any adverse effect on the potential growth of the industry or on the attractiveness of Malta as a centre for professional investor funds.
Probably the most important development on the horizon is the proposed EU Directive on Alternative Investment Fund Managers and the impact that this is likely to have on the industry.
The industry’s concerns that the directive could prompt the migration of service providers toward EU jurisdictions is an new opportunity for Malta to consolidate its position as a domicile and servicing centre for alternative funds.
With the EU moving toward higher levels of regulation for fund managers, Malta’s tried and tested infrastructure of flexible regulation and skilled professionals is well placed to offer the right recipe for alternative funds and a gateway to investors throughout the 27 EU member states.
The draft EU legislation is part of a global trend toward higher levels of regulation, the consequence of which is likely to be the migration of funds from unregulated jurisdictions to regulated ones. In the process, fund managers have to determine which of the regulated environments can provide them with the right environment.
Malta’s blend of flexible regulation, the credibility brought by its reputation as a financial centre, its EU membership and the experience of its service providers and their individual staff position the jurisdiction well to capitalise on the opportunity.
Louis de Gabriele is chairman of the funds expert group of Finance Malta
