Malta's PIF regime allows the setting up of three different types of PIFs each based on the profile of the participating investors' taking into consideration their overall wealth and investment experience. The regulations governing each type of fund vary and are lighter in case of PIFs which are intended for promotion to more sophisticated investors.
The three PIFs categories are as follows:
• PIFs promoted to Experienced Investors – minimum investment threshold of EUR10,000;
• PIFs promoted to Qualifying Investors – minimum investment threshold of EUR 75,000;
• PIFs promoted to Extraordinary Investors – minimum investment threshold of EUR 750,000.
A PIF may be self-managed or third party managed. The self-managed PIF option is quite niche to Malta, yet it is gaining some traction. In this instance, all investment management decisions are controlled by an investment committee rather than have them delegated to an external fund manager.
This is useful for individuals who wish to avoid the costs of applying for, and becoming, a licensed fund manager in their own right, yet understand the benefits of using a regulated fund vehicle via which they may invest investors monies by implementing predetermined investment strategies; a self-managed PIF must be authorised by the MFSA. The key difference between a self-managed PIF and a standalone PIF, therefore, is that investment decisions are taken at Investment Committee level as opposed to the investment function being outsourced to a third party fund manager.
"Those who consider the self-managed PIF route tend to be well-connected with professional investors," explains Dr Jean Farrugia (pictured), senior partner at DF Advocates.
"They will know their profile and investment appetite, and therefore model the fund architecture and investment strategy around the needs of such investors. Moreover the possibility of setting up the self-managed scheme as a multi-fund scheme and that of varying the composition of the investment committee or creating sub-committees of the same investment committee renders the self-managed PIF structure very popular."
Depending on the strategy of the fund, the investment committee would retain all investment decision powers or delegate all or part of the investment management functions to one or more members of the investment committee.
Typically, such delegation occurs where the fund strategy requires daily or frequent trading. For less actively traded funds, such as private equity-type funds, the investment decisions are taken at investment committee level during quarterly investment committee meetings.
The savings which may be made on management fees which would typically be paid out to a third party manager in case of third party managed funds are also an important consideration in opting for the self-managed PIF structure.
The AIF status of a self managed-fund would not entitle the investment committee of the fund collegially or any member thereof to provide fund management services to third party funds, "as with a self-managed PIF the management functions of the investments committee and its members would be restricted to the AIF itself," explains Farrugia.
"The right to manage EU AIFs established in other Members States under Article 33 of the AIFMD is restricted to EU-authorised AIFMs and does not extend to the members of the investment committee of a self-managed AIF. This notwithstanding, the self-managed route remains attractive for fund promoters whose scope is to manage their own funds without the need to market and distribute the units of these funds across the EU."