Funds

Wealth management is a primary goal for many Maltese banks. In the last few years, some service providers are offering Swiss-like private wealth management services. They make available all the preferred investment vehicles for high net worth individuals: hedge funds, equities, and real estate, and it allows investors to protect their legacy through trusts.

Why is Malta an attractive destiny for foreign investors seeking for wealth management services?

Ø  First, the country has one regulator for all financial services: the MFSA. Family offices in Malta say they can easily navigate through the intricate regulatory frame as they are conducted with the same authority, which is generally regarded as transparent.

Ø  Likewise, the country’s strength lies in its flourishing financial services sector, which offers a wide array of investment possibilities such as AIFs, PIFs, trusts, and more.

Ø  Malta has seen a recent increase in investment banking and wealth management services, with reputable and seasoned service providers entering the game

Ø  Single-family offices are not designed as profit-making entities in themselves, so their operational costs must be under control. That’s why many family offices are restructuring their operations and expenses, and they are looking at Malta because it offers incredibly competitive fees for all the wonderful benefits that may arise from it.

So, basically, the Maltese system offers you some of the best fund opportunities in Europe, which can be used for wealth management purposes on expert hands with ideal infrastructure and a friendly regulatory regime.

We must say: Malta is among the top fund jurisdictions in the planet. There’s a good reason why there are nearly 700 funds established in the country under its top classifications and schemes, which benefit from the friendly tax regime and top financial infrastructure of Malta.

If you’re looking at your next investment in Malta, funds should be one of your top options.

One of the main features of the financial system in Malta is its flexibility. Funds can be licensed in two main ways: Alternative Investment Funds (AIFs) or Professional Investor Funds (PIFs). AIFs is the best path for investors that wish to move the fund throughout the EU as it has “passporting” rights. PIFs are usually better for smaller funds. Likewise, the Maltese legislation also allows for UCITS (Undertakings For Collective Investment in Transferable Securities) Funds and Notified AIF (NAIF), which can be set up in as little as ten days.

The growth of the sector has been driven by the development of service clusters in wealth and asset management that are well-known for their experience, seriousness, transparency, and cost-consciousness. The wide array of funds gives providers and investors plenty of flexibility when choosing a particular type of fund and plenty of sophistication of asset management that allows better tax optimization.

Two of the benefits of this flexibility is that Malta allows funds to adopt self-management strategies and the freedom to use foreign financial service providers. Funds are not required to appoint a local administrator, which means they can work with international institutions with which they have worked previously.

First of all, why open a fund in Malta? 

There are plenty of benefits of Malta as a fund jurisdiction:

Ø  Low licensing and registration costs compared to other popular fund jurisdictions within the EU.

Ø  Low capitalization rules

Ø  In particular, Professional Investor Funds can be self-managed without a third party, which have share capital benefits, and they do not have to appoint a manager, custodian or administrator.

Ø  Amazing tax regime

Ø  The fund can invest in both underlying assets or through special purpose vehicles, both local and foreign.

Ø  A quick licensing process that may deliver you an in principle approval in seven working days,

Let’s talk about each one of the types of funds in detail.

The Professional Investor Fund (PIF): It is Malta’s most popular hedge fund. It gives investors a ton of leeway in their investment strategies. For example, the PIF can be used to invest in cryptocurrencies. PIFs are only open to qualified investors than can invest at least €100k. They can be set up as an umbrella fund that shelters different subfunds. In this case, the €100k threshold is determined per scheme instead of per fund, as it would mean that each sub-fund needs a minimum €100k investment. Thus, it allows investors to diversify their strategy across a variety of subfunds.

To set it up, the MFSA will require the following steps: 1) A preliminary meeting, 2) Submission of the application, 3) fit and proper checks (due diligence), 4) An in-principle approval by the MFSA, 5) Submission of the final documents.

The MFSA may require some additional post-licensing documents or procedures to allow the fund to start operating.

This is the criteria for qualifying investors:

1)    He invests at least €100k in the PIF, and the investment cannot be reduced below that limit

2)    Provides a written statement to the fund manager and the PIF accepting the risks associated with the investment

3)    He satisfies one of the following conditions:

a.     Is a corporate body with net assets of more than €750k or is part of a group that holds such amount

b.    Is an unincorporated body of individuals with net assets exceeding €750k

c.     Is a trust with a net value of more than €750k

d.    Is an individual with a net worth (or joint net worth with his or her spouse) of more than €750k

e.     Is a senior member or director of a financial service provider to the PIF

What else should you know about the PIFs?

Ø  The fund can be self-managed or managed by a third party. The administration can also be delegated to a third-party in Malta or abroad

Ø  It requires an auditor, a compliance officer, and a money laundering reporting officer, but the custodian is optional

Ø  Fees:

o   Application fee: €2k

o   Application fee for subfunds: €1k

o   Annual supervisory fee: €2k

o   Annual supervisory fee per subfund: €600

The Alternative Investment Fund (AIF) is an investment fund designed for professional investors. They are defined as a collective investment undertaking that raises capital from different investors in order to invest with a determined investment policy. That means the AIF is outside of the UCITS scheme.

Usually, they have fewer requirements than UCITS, which are mainly directed towards retail investors. AIFs include most of the funds that are generally popular among wealth management service providers: hedge funds, real estate funds, private equity funds, and venture capital funds. AIFs have one main benefit: they can be passported, meaning they can be offered to investors across all EU states. Moreover, they are tax-exempt on income deriving from capital gains.

The minimum required investment is also of €100k, and the initial share capital must be of €300k if they are self-managed. They have certain investment restrictions on retail investors. They can be self-managed or managed by a third party.

The fund must appoint:

Ø  A custodian

Ø  A compliance officer

Ø  A money laundering reporting officer

Ø  An auditor

Ø  An administrator (it can be the manager or a third party)

AIFs have a subtype, Notified Alternative Investment Funds. For some fund managers, AIFs are way too costly and impose too many restrictions and regulations. The Maltese government created NAIFs, which gives fast-track access to fund managers seeking to passport their funds throughout the EU. It allows managers to assume full responsibility for the fund, meaning it can operate by just notifying the regulator. After this, the access to the market can be obtained in less than two weeks if the MFSA considers the documentation fulfills the requirements.

The investors’ base is always made up of professional investors.

To qualify, the investor must:

1)    Invest at least €100k in the NAIG, and the investment cannot be reduced below that limit

2)    Provides a written statement to the fund manager and the NAIF accepting the risks associated with the investment

3)    He satisfies one of the following conditions:

a.     Is a corporate body with net assets of more than €750k or is part of a group that holds such amount

b.    Is an unincorporated body of individuals with net assets exceeding €750k

c.     Is a trust with a net value of more than €750k

d.    Is an individual with a net worth (or joint net worth with his or her spouse) of more than €750k

e.     Is a senior member or director of a financial service provider to the NAIF

What else do you need to know about NAIFs?

Ø  They cannot invest in non-financial assets

Ø  They cannot be self-managed, and the fund administration and custodian must be located in Malta

Ø  It requires an auditor and a compliance officer

Ø  It requires a money laundering reporting officer but can be outsourced to the administrator

The application fees are:

Ø  Application fee: €2k per fund, €1k per subfund

Ø  Annual notification fee: €2k per fund, €1k per subfund

To apply for an AIF managing license, the following information is required:

Ø  Information on the individuals conducting the AIF’s business

Ø  Information regarding the qualifying shareholders

Ø  Organizational structure of the AIF

Ø  Information regarding its remuneration policy

Ø  Information regarding arrangements of de delegation or subdelegation of the AIFs functions to third parties

Regarding their capital, applicants must have:

Ø  Initial capital of €125k

Ø  Additional personal funds of at least the 0.02 % of the capital of the AIF assets under management exceeds €250m, with a €10m cap

Ø  Additional personal funds to cover for professional liabilities or an adequate indemnity insurance

Lastly, we can talk about UCITS. These are fully EU harmonized retail funds that can operate all along the EU with one authorization of one EU member state. They grant a high degree of investment protectors. Usually, They invest in securities such as company shares, bonds, and other forms of debt securities, and any other type of transferable securities. They can also participate in money market instruments, collective investment schemes, and financial derivative instruments.

They are profoundly beneficial because they have cheap set-up and running costs and simplified procedures and allow setting up umbrella funds. They are generally approved in two or three months. The minimum required capital is €125k if managed by a third party, and €300k if self-managed.

It requires a custodian, a compliance officer, a money laundering reporting officer, and an auditor. However, the administrator and fund manager are optional. The fund manager can be a company with sufficient liquidity at its disposition.

They must pay two kinds of fees:

Ø  Application fee: €2.5k per scheme; €450 per sub-fund (from the 16^th sub-fund, there’s no application fee)

Ø  Supervision fee: €3k per scheme; €500 per sub-fund (from the 16^th sub-fund, there’s no supervision fee)

Now that you know all the potential benefits you may obtain from investment funds in Malta, you may even want to set up your own investment service provider in Malta or to establish a branch of your investment company in Malta.

Why getting a Maltese investment services license? What does it differentiate it from any other jurisdiction?

First, it offers high-level investor protection. It is illegal for individuals to provide investment services without a valid investment license. As with all financial services, this license is granted by the MFSA. Generally, the conditions to obtain a permit are reasonable levels of expertise, integrity, and fair dealing.

The MFSA provides low-cost services with reduced bureaucracy while keeping a high degree of trust and compliance. Thus, obtaining an investment license in Malta, setting up the service provider, and the operational costs of the company are lower than in most European jurisdictions

Also, Maltese investment service providers can benefit from a 5 % corporate tax rate (6/7ths) if they are limited to services from Malta, but not in Malta. That means they do not provide consulting services for Maltese individuals or companies).

Lastly, as you may have seen, a Maltese investment license gives you passporting rights. That means you can operate in any other EU country without further regulations either directly, or through branches. This benefit, combined with the simple, cost-conscious process of obtaining the license, has turned Malta into the best destination for non-EU investment service providers that want to start operating in the European market.

What activities can be conducted with this license?

Ø    Dealing

Ø    Buying, selling, subscribing for instruments, or underwriting them

Ø    Negotiating deals

Ø    Negotiating on behalf of another person to buy, sell, subscribe for instruments, or underwriting them

Ø     Management of investments

Ø  Managing assets on behalf of another person if those assets include one or more instruments that can be discretionally managedfor investment in one or more instruments

Ø   Serving as trustee, custodian, or nominee holder of a financial instrument or those assets connected to an instrument, as long as the serving is done as part of the investment service

Ø  Holding an instrument or the assets it represents or is linked to as a nominee representing another person who provides an investment service, or representing a client of that person if the nominee holding is conducted concerning that investment service or a collective investment scheme.

Financial services licenses have four categories:

Category 1: Authorizes to provide investment services but not to hold and control clients’ capital or assets, nor dealing for their account, or to underwrite.

Category 2: Authorizes to provide investment services and to hold and control clients’ capital or assets, but not to deal for their account, or to underwrite.

Category 3: Authorizes providing investment services and holding, controlling clients’ capital or assets, dealing for their account, and to underwrite.

Category 4: Authorizes to act as custodian of a collective investment scheme.

To wrap it up:

How is the application process? 

First, there’s a meeting with the MFSA to discuss the potential application before submitting the documents. The rest of the process is summed up into three steps:

Ø  Preparatory step: Meeting with the authority to submit a draft of the application form and required documentation. Afterward, it’s reviewed by the MFSA, and the license conditions for the applicant are established.

Ø  Pre-Licensing step: Here, the MFSA issues an in-principle approval, which means the investment vehicle can be incorporated after the submission of the final application form and required documentation, including other documents that may be asked during the application process.

Ø  Post-Licensing step: After the submission of the final documents, the MFSA may ask for specific ad hoc requirements before the formal commencement of the business.

Want to know more about the amazing fund opportunities in Malta and establish an investment fund or your own fund firm? Contact us right now!