There is never an easy time to launch a hedge fund. With a raft of regulatory compliance considerations, the latest – and potentially most ominous – being MiFID 2 when it comes into effect on 3 January, costs are rising. And at the same time, investors continue to apply fee pressures.
Factor in that the markets themselves have not been easy in recent times, making the search for alpha a constant challenge, and there is little wonder that fund jurisdictions have seen a slowdown in fund growth.
“It is really the result of a plethora of issues that managers must face and this is undoubtedly impacting the hedge fund industry,” comments Kenneth Farrugia (pictured), Chairman, FinanceMalta. “We are seeing new funds being set up but also others that are closing either because they haven’t delivered on their performance objectives, they are finding the new regulatory requirements to be too onerous and costly or possibly they haven’t been successful in attracting capital into their funds.
“Nevertheless, Malta continued to see good levels of activity in Q1 and Q2 with respect to new fund set-ups. We are seeing retail funds being launched as well as PIFs, which tend to be used to target institutional investors and HNW individuals. Statistics don’t always provide an insight into the target investors of these funds; they might be targeting HNW individuals or family offices, or they might be targeting larger institutional investors such as pension funds and insurance companies.”
Such is the level of competition in the marketplace when it comes to raising assets that Farrugia believes hedge fund managers are giving much more consideration to the way they articulate their strategy and proposition and are coming up with niche, innovative investment strategies to try to stand out from the crowd.
“The ‘me too’ syndrome that we’ve seen in the past is, I believe, less prevalent today. Managers are really focusing to try and deliver value in the investment proposition they put on the table,” suggests Farrugia. If the strategy does not have a demonstrable edge, or the value-add is not strong, they won’t capture the attention of investors.
In order to attract these new managers, FinanceMalta – which promotes Malta’s fund management industry overseas (in addition to the insurance sector, and private wealth) – has continued to organise initiatives in a number of key markets, both in Europe and beyond. The aim of these initiatives is to deliver information on the flexibility of the legal and regulatory framework in Malta and the ability to set up a comprehensive range of fund structures covering AIFs, UCITS and PIFs.
With Brexit now in full train, this could provide just the fillip that Malta needs to attract more managers and maintain the growth of its funds ecosystem. There are already 160 investment services license holders in Malta consisting of Asset Managers, Investment Advisors and depositories some of which are passporting products and services to the UK which will be impacted by the onset of Brexit.
“There are numerous initiatives that we are undertaking where we are proposing tangible solutions to support managers in sustaining their business in Europe. Malta is highly competitive in this space by way of our comprehensive regulations and legislation mirroring that found in the UK, which I must add are in both the Maltese and English language, a single regulatory body that is meticulous but very accessible and pro-business and equally important, a jurisdiction which is cost competitive.”
