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Can Malta carve out a Middle East niche?

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The political upheavals in North Africa in the first half of 2011, including the destructive civil war in Libya, have disrupted efforts to develop fund investment in the region, but over the long term industry members believe that Malta’s longstanding links with its Mediterranean neighbours can help it carve out a specialist niche as a centre both for investment in the region and for the establishment of funds by promoters based throughout the Middle East.

“We have seen more interest from the Middle East, particularly in Ucits but also in the alternatives space, since the financial crisis,” says Fenech & Fenech partner Dr Joseph Ghio. “Malta has historic cultural links with North Africa and the Middle East, and some people there now see our country as an oasis of stability. What is happening in Libya has shone a light on Malta’s strategic position, not only geographically but as a gateway to Europe for fund promoters from the Middle East wanting to establish a presence in the EU.

“They know there is a huge market in Europe and that Ucits is the most recognised investment brand worldwide. More than 40 per cent of Ucits sales are now outside the EU, and Asian countries are trying to emulate the Ucits model. But Ucits funds are not the only route because they will never be able to accommodate all investment strategies. Some managers want flexibility for hedge funds strategies that Ucits cannot provide.”

According to Apex Fund Services managing director Anthony O’Driscoll, relationships with the Middle East and North Africa may not yet be resulting in a great deal of concrete business, but it is likely to grow in the long term. “Efforts are underway to build a Shariah-compliant fund structure here, something we should benefit from over time,” he says.

Dermot Butler of administrator Custom House believes that instability and conflict in the Middle East, which has already damaged Beirut’s position as an Arab financial capital and could affect Bahrain’s role in the Gulf, could play in Malta’s favour. “A lot of investors today wouldn’t consider investing in the Middle East and North Africa because of these upheavals, which could well continue for a decade or even a generation.

“Take Lebanon – it may now be at peace and more people are investing there, but they are doing so through external vehicles. Very few people are brave enough to invest directly into Lebanon. I can see people investing through vehicles set up in Malta for North Africa, and maybe for other parts of the Middle East. There could be competition from other centres such as Singapore, but Malta has thrived on competition for years.”

The South African background of the IDS Group has already brought its Maltese operation business from managers investing in other regions of the continent, according to Andrew Frankish. “We are getting quite a few African-focused funds, although some launches have been postponed because of the uncertainty in North Africa,” he says. “We had one fund licensed in January that was ready to invest in Egypt when the Cairo Stock Exchange closed down.”

Please click here to download a copy of the Hedgeweek Special Report: Malta Hedge Fund Services 2011


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