When it comes to the formation process, funds in Malta may take different legal forms and with respect to hedge funds, the most popular structure is the SICAV. The formation process is two-fold:
• The fund licensing process, handled by Malta's financial regulator, the Malta Financial Services Authority (`MFSA') and;
• The constitutive process, handled at the Registry of Companies level.
Perhaps unsurprisingly, the former represents the greater challenge. A formal application for a fund license is filed with the MFSA, whereby a full suite of application documents, plus application fees are presented.
"The application pack comprises, amongst others, an application form, draft M&A, draft offering documentation, board resolutions, and due diligence documentation on all functionaries and appointees," explains Joseph M Camilleri (pictured), Chief Officer of Valletta Fund Services, the fund administration arm of Bank of Valletta and Malta's largest administrator. "This would lead to the receipt of MFSA's "Initial Comments" letter, whereby the regulator makes observations on the various documents presented to it."
Once all issues in the documentation are addressed by the turnkey contractor (which might be a law firm or even a fund administrator) and meet the MFSA's satisfaction, this would lead to the issuance of an "In Principle Approval" letter.
"At this stage, the SICAV is incorporated and all outstanding and any pre-licensing conditions as listed in the MFSA's letter are addressed. Following which the SICAV is effectively issued a license to operate," confirms Camilleri.
As Malta's fund industry is fully regulated, all hedge funds that are established as AIFs are subject to the full scope of the AIFM Directive.
However, de minimis fund managers – those with less than EUR100 million in AUM – or self managed de minimis AIFs may opt out of this regulation and be structured as per the regulatory provisions of the EU Member State where the fund is to be set up. Malta opts to regulate this segment too, notwithstanding it is out of scope for AIFMD.
"As such, these AIF strucures lend themselves perfectly for promoters of smaller sized funds, putting Malta in an enviable position of not pursuing a "one size fits all" approach to out of scope hedge funds," says Camilleri.
This is certainly a useful differentiator for Malta. When asked how he feels the island will continue to evolve going forward, Camilleri confirms that, aside from fund formation, the setting up of AIFMs is "developing nicely". Here, the core business model is to carry out the risk management function from Malta and the designated management company, and delegate the investment management function to licensed entities in other domiciles such as London.
"A number of EU-based entities, particularly UK-based ones, have set up subsidiary operations in Malta to act as the AIFM, precisely for this purpose. By doing so, they benefit from a lower cost base, a friendly regulatory climate and an EU-approved advantageous fiscal regime," adds Camilleri, noting that both de minimis AIFs and fund managers have also found fertile ground in Malta.
One other positive development in Malta, which is likely to continue providing growth opportunities to the sector, is the rent-a-cell concept.
"Platforms hosting other parties' sub-funds – the plug and play model – is again a very encouraging trend that is picking up and which is likely to enhance its presence further in Malta," concludes Camilleri.