A small, but strategically located jurisdiction, Malta has successfully adapted its infrastructure, services and regulation to remain attractive as an international financial hub. As the financial industry continues to push the boundaries of innovation, Malta seeks to keep pace with managers looking to bring new products to market and meet their needs in terms of service, administration and compliance.
One of the key milestones in Malta’s journey to becoming a jurisdiction of choice for managers was the creation of the Professional Investment Fund (PIF). Providing managers with a regulated structure, the PIF allows managers to launch regulated funds quickly and efficiently. In particular, this structure is well-suited to funds catering for high net-worth individuals.
“Initially, the PIF was available to investors with as little as €10,000 to invest. However, the rules were amended to focus on qualifying investors, streamlining the process,” explains Anabel Mifsud, chair of the Malta Asset Servicing Association (MASA).
Formerly known as the Malta Funds Industry Association, MASA plays a crucial role in liaising with regulatory authorities to create a favourable environment for managers to operate here.
The high level of service offered by the Maltese eco-system is one of the distinguishing features the jurisdiction has to offer. The island’s small size allows for strong relationships to be built among industry participants as well as an open line of communication with the regulator – the Malta Financial Services Authority (MFSA).
“Many managers who consider launching a fund in Malta are impressed by the flexibility and bespoke service they can receive. It is a white-glove service which is also cost-effective,” says Mifsud. This element of personalisation coupled with high-quality professionals sets Malta’s proposition apart.
Demonstrating its agility, Malta was quick to transpose the Alternative Investment Fund Managers Directive (AIMFD) into local law when it was first introduced – this was done in July 2013, the same month in which the AIFMD came into force across the European Union. The jurisdiction went on to launch the Notified Alternative Investment Fund structure (NAIF) in 2014, the Maltese equivalent of the Reserved Alternative Investment Fund (RAIF) available in Luxembourg.
The island has also been prompt at identifying industry trends and capitalising on investor appetite. This is of particular relevance in relation to the crypto and digital assets space.
Malta has been at the forefront of regulating cryptocurrency and digital assets. “It was the first jurisdiction in Europe to establish written rules for cryptocurrency funds. In 2018, when the enthusiasm for cryptocurrency surged, Malta demonstrated its willingness to adapt to this development by allowing PIFs to invest in digital assets. This move enabled fund managers to capitalise on this nascent asset class through a quick-to-market regulated asset class while ensuring proper risk management measures were in place,” Mifsud notes.
This demonstrated the MFSA’s responsive stance to industry developments, particularly surrounding digital assets as a new, innovative sector. The regulator provided clarity on classification, the role of depositories, and the supervision of funds operating in the crypto space.
As a result, the MFSA’s proactive approach in this regard has attracted managers seeking to establish regulated funds investing directly in digital assets.
“To date, the PIF is one of the few, if not the only, regulated structure which allows managers to invest directly in crypto and digital assets,” says Mifsud. She notes that the successful PIFs investing in crypto, grew to need a different solution in view of them exceeding the €100 million threshold for PIFs.
Following discussions with the MFSA, the market has seen the first crypto PIF being converted into a fully regulated AIF investing directly in digital assets in 2022. This progress shows the jurisdiction’s ability to adapt to the industry’s needs.
The proposed Notified PIF structure (discussed in more detail later in this report) also displays this willingness to provide solutions market participants require. The structure due to be launched later this year will provide managers a faster route-to-market, which is particularly relevant to start up funds.
As the private capital space continues to attract investment attention, given the appealing risk/return potential and investor desire for yield and diversification, Malta is increasingly looking to entice private equity and private credit managers, a segment that traditionally gravitates toward larger jurisdictions. The jurisdiction is mainly focused on attracting start-up managers in this space.
“With its cost-efficient fee structures and the high level of service offered, Malta offers an attractive alternative to other established financial centres,” explains Mifsud, “The jurisdiction is of particular appeal to those managers who do not need a ‘brand name’ jurisdiction behind their fund.”
While some larger jurisdictions have become synonymous with private equity, Malta can provide a much more bespoke service, even in this area and especially to smaller, start-up managers. Mifsud outlines: “The industry here can hold their hand and guide managers through certain operational functions which are not within their core capabilities.” Larger financial centres are now used to handling larger fund structures and may have lost touch with the grassroots needs of the emerging manager sector. The service providers in Malta on the other hand understand this group’s requirements in detail.
The service providers play a pivotal role in supporting start-up fund managers through the licensing and compliance processes. They understand the challenges they face and have developed expertise in assisting them. “The service providers act as partners, guiding and supporting fund managers through the complexities of regulation and compliance, ensuring a smooth and efficient process,” Mifsud says.
Although Malta’s regulatory framework and the structures available rival other eminent jurisdictions in Europe, there are still some misconceptions among managers and investors which can sometimes serve as an obstacle to the growth of the financial industry here.
“There is a strong need to educate managers and also prospective investors on what Malta has to offer and the nature of the jurisdiction,” comments Mifsud, “For example, many still think Malta is an offshore financial centre, which it is not – it is a European financial centre which happens to be an island.”
Managers will be more comfortable with presenting Malta as their jurisdiction of choice to investors once they fully grasp that they are offering the same fund structures present in places like Ireland and Luxembourg, just within a smaller eco-system. This is especially relevant for smaller, start-up managers who may be looking for a more cost-effective way to bring their funds to market.
Flexibility and quality
Malta has been making several strides to keep pace with the changes witnessed across the financial industry and ensure its framework and offering is robust and fit for purpose. The fund structures offered together with the quality service providers active in the industry provide smaller managers with a fast, cost-efficient route to market, coupled with high levels of service they may not benefit from in other, larger jurisdictions.
However, there is insufficient knowledge of the way Malta compares to other European jurisdictions and therefore industry organisations like MASA will continue to share their knowledge and expertise to educate managers and investors alike.