The different types of investment funds in Malta – Finance and Banking

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Background

A series of European Union directives implemented in July 2011 allow collective investment undertakings to operate freely across the EU, based on a single authorization from a Member State.

Features of these EU regulated funds include:

  • A framework for cross-border mergers between all types of funds regulated by the EU, authorized and recognized by each Member State.
  • Cross-border master-feeder structures.
  • Management company passport, which allows an EU regulated fund established in one EU Member State to be managed by a management company in another Member State.

Dixcart Malta Fund Services

From Dixcart’s office in Malta, we offer a full range of services including: accounting and shareholder reporting, corporate secretarial services, fund administration, shareholder services and valuations.

The Dixcart Group also offers fund administration services in: Guernsey, Isle of Man and Portugal.

Types of investment funds and why Malta?

Since Malta joined the EU in 2004, the country has enacted new legislation and introduced supplemental fund schemes. Malta has since been an attractive place to establish a fund.

It is a reputable and profitable jurisdiction, and it also offers several types of funds to choose from, depending on the preferred investment strategy. This provides flexibility and the ability to adapt to different circumstances.

Currently, all funds in Malta are regulated by the Malta Financial Services Authority (MFSA). Regulation is divided into four different types:

  • Professional Investor Fund (PIF)
  • Alternative Investor Fund (AIF)
  • Notified Alternative Investment Fund (NAIF)
  • Collective Investment Organizations in Transferable Securities (UCITS).

The Professional Investor Fund (FIP)

PIF is the most popular hedge fund in Malta. Investors generally use this type of fund to carry out innovation-related strategies, for example investing in cryptocurrency, as the main characteristics of the fund are flexibility and efficiency.

PIFs are known as collective investment schemes designed to target professional investors and high net worth individuals, due to the lower investment, asset threshold and experience required than other types of funds.

To create a PIF, the investor must be a qualified investor and must invest a minimum of € 100,000. The fund can also be created by setting up an umbrella fund which includes other compartments within it. The amount invested can be set per plan, instead of per fund. This method is often considered the easiest option by investors when setting up a FRP.

Investors must sign a document attesting to their knowledge and acceptance of the risks involved.

The qualified investor must be; a legal person or a legal person forming part of a group, a legal person or an unincorporated association, a trust or a natural person whose assets exceed € 750,000.

A Maltese PIF system can be formed by one of the following social vehicles:

  • An Investment Company with Variable Capital (SICAV)
  • A closed-end investment company (INVCO)
  • A limited partnership
  • A Unit Trust / Contractual Mutual Fund
  • An incorporated cellular company.

The Alternative Investor Fund (AIF)

An AIF is a pan-European collective investment fund intended for informed individuals and professionals. It can also be created as a multi-fund where the shares can be divided into different types of shares, thus creating compartments of the AIF.

It is said to be “collective” because many investors can participate and any profit is distributed among the fund’s investors according to a defined investment policy (not to be confused with UCITS which have more stringent requirements). It is qualified as “pan-European” because the AIF has a European passport and therefore any investor from the EU can join the fund.

As far as investors are concerned, these may be qualified investors or professional clients.

An ‘Eligible Investor’ must invest a minimum of 100,000 €, declare in a document to the AIF that he is aware of and accepts the risks he is about to take, and finally, the investor must be; a legal person or a legal person belonging to a group, a legal person or an association, a trust or a natural person whose assets exceed € 750,000.

An investor who is a “professional client” should have the experience, knowledge and skills to make their own investment decisions and assess risks. This type of investor is generally; entities that are required / authorized / regulated to operate in financial markets, other bodies such as national and regional governments, public bodies that manage public debt, central banks, international and supranational institutions and other investors institutions whose main activity is to invest in instruments. Additionally, clients who do not meet the above definitions may apply to be professional clients.

A Maltese AIF can be constituted by one of the following social vehicles:

  • An Investment Company with Variable Capital (SICAV)
  • A closed-end investment company (INVCO)
  • A limited partnership
  • A Unit Trust / Contractual Mutual Fund
  • An incorporated cellular company.

The Notified Alternative Investors Fund (NAIF)

NAIF is a Maltese product used by investors when they want to market their fund, within the EU, quickly and efficiently.

The manager of this fund (Alternative Investment Fund Manager – AIFM), assumes full responsibility for the NAIF and its obligations. After ‘notification’, the AIF can access the market within ten days, provided all documentation received by the MFSA is in order. Securitization projects are an example of what NAIFs are used for.

Within this fund, as in an AIF, investors can be Qualified Investors or Professional Clients. Either can request the “notification” process, the only two requirements being; investors must each invest a minimum of € 100,000, and they must declare to the AIF and AIFM, in a document, that they are aware of the risks they are about to take and that they accept them.

Relevant characteristics of an NAIF include:

  • Subject to an MFSA notification process, rather than a licensing process
  • Can be opened or closed
  • Cannot be self-managed
  • Responsibility and supervision are assumed by the AIFM
  • It cannot be set up as a Loan Fund
  • Cannot invest in non-financial assets (including real estate).

A Maltese NAIF scheme can consist of one of the following social vehicles:

  • An Investment Company with Variable Capital (SICAV)
  • A closed-end investment company (INVCO)
  • A Cellular Company Incorporated of a SICAV (SICAV ICC)
  • An Incorporated Cell of a Recognized Incorporated Cellular Company (RICC)
  • A Unit Trust / Contractual Common Fund.

Undertakings for Collective Investment in Transferable Securities (UCITS)

UCITS funds are a collective investment scheme, a liquid and transparent retail product that can be marketed and distributed freely throughout the EU. They are governed by the European UCITS directive.

Malta offers a cost effective option, with flexibility, while fully respecting the EU Directive.

UCITS, created in Malta, can take the form of a variety of different legal structures. The main investments are transferable securities and other liquid financial assets. The UCITS can also be created as an umbrella fund, where the shares can be divided into different types of shares, thus creating compartments.

Investors must be “retail investors” who must invest their own money in an unprofessional manner.

A Maltese UCITS system can be established by one of the following social vehicles:

  • An Investment Company with Variable Capital (SICAV)
  • A limited partnership
  • A Unit Trust
  • A Common Contractual Fund.

Summary

A variety of different funds are available in Malta and professional advice, from a company such as Dixcart, should be taken, to ensure that the type of fund selected best matches the particular circumstances and types of investors investing in it. the bottom..

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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