“What we are seeing under AIFMD is increased interest in asset managers using Malta as a domicile for the setting up of AIFMs,” observes Kenneth Farrugia (pictured), Chairman of FinanceMalta.
He continues: “Over the past ten years, the MFSA has authorised quite a number of Category 2 management companies. In fact, as at 30th June 3014, the MFSA had authorised 99 category 2 companies, and when one considers the advisory and custody service providers there are around 132 asset servicing operators in Malta. Beyond the 620 funds currently authorised by the MFSA, we have started to witness cluster formation on the asset management side.”
In the main these AIFMs are part of wider European operations according to Farrugia. In time, non-EU managers will increasingly look to jurisdictions like Malta as they search for a cost-effective way to becoming compliant under the AIFMD. In this regard, Malta has carved out an attractive value proposition.
“The main reasons for this (amongst many) are that: a) we have an equivalent legal and regulatory framework governing the set-up of fund managers and funds; b) the MFSA is accessible and pro-business; c) Malta has a competitive licensing process; and finally, d) the costs of setting up funds and fund management companies are highly competitive.
“For example, the turnkey cost of setting up a fund in Malta costs in the region of EUR15,000 to EUR25,000. When you apply that kind of cost to a fund of EUR30-40m, it becomes very attractive as the overall impact on the TER is a manageable one, particularly as these costs are amortised over a five-year period,” comments Farrugia.
Malta’s attractiveness as far as its cost competitiveness is concerned is not just limited to the set-up costs but equally to the ongoing servicing costs. To illustrate, the fund administration costs for a Maltese start-up fund are traditionally in the region of EUR15-20,000 per annum depending on the key features of the fund; e.g. the frequency of valuation, number of positions, trading volumes and number of share classes. The audit fees would be in the region of EUR6,000 per annum.
If a new manager has the opportunity to receive day one capital from an investor in exchange for discounted fees, that manager has to move quickly to bring their fund to market. Factors such as cost and speed are crucial and go some way to explaining why Malta’s reputation continues to be enhanced.
“When fund promoters come to Malta and speak to the various stakeholders such as lawyers, auditors, fund administrators and the regulator they are pleasantly surprised by what they can set up in Malta in a relatively cost-efficient and timely manner,” adds Farrugia. “If you look at the growth rate, the number of funds has risen from just 100 in 1995 to 620 funds today. We have 28 fund administrators, around 120 licensed entities (advisors, fund management companies). As a result, Malta has created a robust fund servicing ecosystem which is leaving its mark.”
As global hedge fund managers typically run multiple funds spanning different jurisdictions, one of the consequences of this is that domiciles like Malta are increasingly being used as an administration hub.
“A number of fund servicing providers in Malta are increasingly being entrusted with the administration of funds that are domiciled in other jurisdictions such as Cayman, BVI and the Channels Islands as Maltese providers are deemed to be more cost competitive for the same service offering,” confirms Farrugia.
