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Fund structure ecosystem continues to grow

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Following Malta's implementation of the Alternative Investment Fund Managers Directive (AIFMD), it is possible to set-up Alternative Investment Funds (AIFs) in Malta in accordance with the AIFMD. 

Nevertheless, the existing Professional Investor Fund (PIF) regime has been retained in parallel with the AIF Regime, thus enabling de minimis fund managers and third country managers to set up collective investment schemes under the Investment Services Act, regulated by the Investment Services Rules for Professional Investment Funds. 

Even though the PIF regime has remained popular with fund managers, fund platform structures have also gained momentum. According to Dr Stefania Grech (pictured), Financial Services Associate, Chetcuti Cauchi Advocates, Malta, one fund structure in particular has attracted interest from promoters: the Recognised Incorporated Cell Company (`RICC'). 

"Typically you have a SICAV fund structure that can be used to `plug & play' sub-funds. The RICC works in a more advantageous manner since different SICAVs – not just sub-funds – can be plugged into the RICC. Agreements are put in place with the underlying incorporated cells (`ICs') which are fund structures in themselves. Typically these would be umbrella funds with their own underlying sub-funds. This provides better segregation between different ICs," explains Dr Grech.

One of the key advantages that Malta offers is the range of fund structuring options available. This year eight UCITS funds have already been established, with Dr Grech confirming that Chetcuti Cauchi Advocates is currently working on two more UCITS applications. "There is a trend towards having a marketable brand to offset the additional costs that come with fund structuring. This same mind-set might, going forward, also be applied to the AIF structure as the AIFMD regime becomes more familiar," suggests Dr Grech.

The number of AIFs in Malta remains small; only four have been structured thus far in 2015. New managers, it seems, prefer to go down the PIF route, which might be more cost-effective whilst still being a regulated fund product.   

"From our experience, the AIF model is resorted to more frequently when it comes to setting up a self-managed structure. In this scenario, there is also the possibility that portfolio management can be delegated elsewhere within the EU," says Dr Grech. "Even though the AIF rulebook is not mandatory under the Directive for each EU Member State, Malta took the responsibility to transpose it and this has proven to be a very sensible decision. In addition, the fact that the MFSA decided to regulate de minimis fund managers ensures that there is a certain adequate degree of supervision in place." 

The PIF regime is seen as striking the right balance for small funds in that it is cost-effective, and although not fully compliant with AIFMD, it still abides by the regulatory requirements of transparency and good corporate governance, ensuring a good level of investor protection. 

Malta's decision not to implement Guideline 18 of the ESMA Guidelines on Remuneration has also helped to attract AIFMs. 

The remuneration obligation stops with the Malta AIFM. What this means is that if, for example, portfolio management of the AIF is delegated from the Malta-based AIFM to a London-based manager, there would be no look-through undertaken and the London manager would not be subject to the remuneration principles. 

"This is regarded as an additional benefit to anyone setting up an AIFM in Malta," concludes Dr Grech.

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