PIF to Ucits: the Maltese conversion
In recent years, the number of collective investment schemes licensed by the Malta Financial Services Authority has grown in a rapid and consistent manner. At the end of 2008, the total number of licensed Malta-based funds and sub-funds amounted to 398, compared with 296 in 2007 and 200 in 2006.
The three main types of collective investment schemes licensed in Malta are Professional Investor Funds (PIFs), Retail Ucits Schemes and Retail Non-Ucits Schemes. While PIFs are the most popular type of collective investment scheme licensed in Malta, Retail Ucits Schemes allow access to a wider market through the EU passporting regime.
The larger distribution network that can be achieved through a Ucits scheme ultimately results in a reduction in costs for investment managers, which can then be passed on to the investors.
One of the factors that enhances Malta's reputation as an investment fund domicile is the speed with which the Maltese regulator reacts to changes in the industry. For example, the MFSA has undertaken various initiatives that provide Ucits fund managers with access to less traditional portfolio management techniques and therefore bring closer long/short funds (typically PIFs) with long-only funds (typically Ucits).
These initiatives include the transposition of the EU Eligible Assets Directive into Maltese rules, the possibility for Retail Ucits Schemes to invest in hedge fund indices and the facility available to Ucits schemes to enter into repurchase and stock lending agreements. Adequate disclosure provisions in the Ucits rules ensure that the flexibility that may be achieved through these techniques does not run counter to investors' interests.
It is also possible for a PIF licensed in Malta to be converted into a Malta-based Retail Ucits Scheme and therefore to benefit from the passporting regime. To convert a PIF into a Ucits, various documents must be submitted to the MFSA, including documentation of the board resolution approving the conversion, a duly completed Ucits application form, and evidence of investor approval of the conversion, if applicable.
In addition, there must be evidence of notification to investors of the proposed conversion, in the form of confirmation by the directors that such a notification has been made, as well as confirmation by the custodian or administrator that adjustment of the portfolio has been carried out in accordance with Ucits investment restrictions. The fund's offering memorandum must also be updated in line with Ucits disclosure requirements.
Service providers must be appointed in accordance with Ucits requirements. If existing service providers are to be retained, they will have to comply with Ucits rules and agreements will need to be updated to bring these into line with their obligations under the Ucits regime. Finally, any performance fee structure applicable to the fund will have to comply with the Investment Services Act (Performance Fees) Regulations.
This list of requirements is not exhaustive. It is important to point out that the MFSA will examine each conversion on a case-by-case basis and may request additional information. Upon the completion of the conversion, the fund's PIF licence will be cancelled and a new Ucits licence will be issued. The converted Ucits fund and its service providers will also be required to satisfy the obligations stipulated in the Ucits rules and licence conditions on an ongoing basis.
Dr Simon Tortell is senior partner with Simon Tortell & Associates
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