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The PIF and AIF regime under Maltese law

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By Bradley Gatt & Dr Jean Farrugia, DF Advocates – The Malta Financial Services Authority (MFSA) launched its revised Investment Services Rulebooks by way of final implementation of the Alternative Investment Fund Manager Directive (AIFMD) and relative commission delegated regulations on the 27th June, 2013, thus making Malta one of the first European Union (EU) Member States to begin processing AIFMD applications.

This has brought forth fundamental changes to the Maltese regulatory framework in the financial services sector, which affect both EU and non-EU alternative investment fund managers (AIFMs).

Apart from regulating EU AIFMs managing both EU and non-EU alternative investment funds (AIFs), or otherwise marketing such AIFs within the EU, the AIFMD also seeks to regulate non-EU AIFMs engaging in fund management and/or marketing activities in the EU. The transposition of the AIFMD in Malta has seen the introduction of specific and comprehensive rules and requirements for AIFMs in relation to remuneration, conflicts of interest, risk management, liquidity management, delegation of duties, and the appointment of functionaries in respect of the AIFs managed by such AIFMs.

Compliance with such rules and requirements provides AIFMs with an opportunity to avail themselves of the European management and marketing passports that are granted by the AIFMD solely and exclusively in favour of fully AIFMD compliant managers, with all the benefits and added exposure that this would entail for such managers on a EU level.

The AIFMD also contemplates a lighter de minimis regulatory regime in respect of AIFMs that manage AIFs whose total assets under management do not exceed EUR100,000,000, and AIFMs that manage AIFs whose total assets under management do not exceed EUR500,000,000 and whose portfolios are unleveraged and have no redemption rights exercisable during a period of five years following the date of initial investment in each AIF. This lighter regime involves the considerable relaxation of the aforementioned specific and onerous requirements imposed on the fully complaint AIFMs, with the exception of certain reporting requirements towards the MFSA that involve the de minimis AIFMs disclosing details of the investment strategies of the funds under their management, the main instruments in which the funds under management are trading, and their principal exposures and concentrations.

In Malta, regulation under the AIFMD lighter regime involves the relevant de minimis AIFMs managing Professional Investor Funds (PIFs) which, like AIFs, are promoted to professional investors, but which, unlike AIFs, do not fall within the scope of the full AIFMD regime. De minimis AIFMs are regulated by specific rules issued by the MFSA for such purpose, and the regulation of PIFs has not seen any substantial changes with the transposition of the AIFMD. Whilst de minimis AIFMs do not enjoy the EU passporting entitlements granted to fully AIFMD compliant managers, the former may nonetheless avail themselves of existing EU Member States’ national private placement regimes in order to market PIFs, only insofar as such regimes are retained by the respective EU Member States.

Therefore, considering the above scenarios and implications brought about by the transposition of the AIFMD in Malta, the implementation by Malta of the AIFMD regime should serve to further maximise the options that will be available for fund managers to structure their business and operations with a view to suiting both their own and their investors’ needs.

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