Small is beautiful
The funds industry in Malta has best positioned itself to attract business from fund managers falling out of the scope of the EU Alternative Investment Fund Managers Directive (AIFMD), managing portfolios within the small-to-medium sized space. This is the area of the industry expected to attract the majority of future investments. Managers looking to take advantage of opportunities arising during the global pandemic, also benefited from the quick time to market the jurisdiction offers through certain fund typologies unique to the Maltese domicile.
“The Professional Investor Fund (PIF), which is the structure Malta offers these smaller managers, is attractive for a number of reasons. The setup is flexible; managers have no investment or leverage restrictions and no diversification requirements. In addition, they have no need to appoint a depository, and can even set the fund up in a self-managed format, where there is no need to appoint or set up an external fund management company,” explains Rebecca Xuereb, Business Development Manager, BOV Fund Services.
So essentially, under the PIF regime, fund managers have no requirement to appoint a custodian in the same jurisdiction in which they are domiciled. “Depending on the nature of the asset class they manage, the fund can decide to appoint a prime broker to safekeep their assets and execute the trades, in the case of equities or other such securities for instance. A real estate fund, on the other hand, may opt to appoint a notary to safekeep the contracts of the ownership of the properties invested in by the fund,” Xuereb outlines.
The structure provides more flexibility for firms managing funds in Malta as they are usually based in other parts of the EU. If a fund manager is based outside of Malta and would like to appoint a lawyer or notary in their home country, the PIF provides for this. Insofar as service providers, it is only the auditor which must be based in Malta, where funds have the option to choose between one of the ‘Big 4’ which are all present in Malta, as well as other mid-tier firms.
Flexibility in a crisis
Cost efficiency is touted as one of the key advantages of Maltese fund domiciliation. In Xuereb’s view: “Setting up a fund which is subject to less onerous regulation will equate to lower costs simply because there are fewer requirements to comply with. In addition, the cost of living in Malta is not as high as that in other jurisdictions. A UK fund manager, for instance, may find that setup and running costs such as fund administration would be lower than in other jurisdictions like London or other EU domiciles.”
Another part of the Malta appeal is considered to be the financial regulator’s pro-business stance. The Malta Financial Services Authority (MFSA) demonstrated its belief in this position throughout the pandemic. Xuereb notes: “The regulator was quite understanding throughout the Covid-19 crisis. In normal times, there is usually a limit to how many times board members can dial-in to a meeting and not attend in person. The MFSA however identified the need to hold these meetings completely virtually and industry operators were able to maintain business as usual in this manner.”
Xuereb highlights: “Operators were also granted some extensions on deadlines, where necessary. The MFSA is a strict regulator, having recently focused on enhancing its anti-money laundering procedures specifically. However, the Authority is still understanding and flexible enough to accommodate the needs of the industry.”
In the fallout of the pandemic, Xuereb identifies three main types of client reactions: “We had a handful of clients who were eager to look for opportunity in sectors which could and did benefit from the crisis. For example, some clients wanted to take advantage of the boom in technology companies.
“They weren’t the majority, but we had a few looking to set up new products quickly or amend their documentation to enable them to diversify into these areas. This helped these clients mitigate the consequences in other areas where they were expecting to register losses.”
The second type of client, which accounts for the largest portion of BOV Fund Services clients took a wait and see approach. “We kept in close contact with them to provide support, but on the whole, they didn’t take much action,” Xuereb says.
In the end was the last cohort of clients who took a big hit. Xuereb details how some were planning to launch new products and opted to postpone for a while or take their proposals off the table altogether. “This happens even when the economy is functioning normally, so it’s not surprising to have such things occur in a crisis, particularly one unprecedented in nature,” Xuereb remarks.
Discussing the outlook for the Maltese funds industry, Xuereb observes that competition is increasing and the industry needs to remain nimble: “It’s a heavily regulated sector which is largely driven by advances and amendments in the regulation, which is updated on a regular basis. In view of this, it is imperative to keep up to date and abreast with relevant updates and amendments. We need to make sure we can adapt quickly and continue to provide a high-quality service to our clients enabling us to stay ahead of the curve. We strive to be at the forefront of development and be leaders in the industry, rather than simply follow our competitors.”
Although the island has registered a boom in digital assets, this is a space the Bank of Valletta Group does not participate in. Xuereb explains why: “There have been more enquiries in the cryptocurrency space given this is a newer asset type that the PIF allows. As an organisation, we don’t administer crypto funds because they don’t fall within the risk appetite of the banking group as a whole. However, as a jurisdiction, Malta caters for these fund types as well.”
Being part of a larger banking group has afforded BOV Fund Services a rigorous client acceptance process. “We want to ensure we’re taking on business that is secure, both for the group and for us specifically as administrators. Our clients subsequently also benefit from this, as such process also in turn provides reliance and peace of mind to investors, which is a major concern nowadays.” n
BOV Fund Services is Malta’s leading fund services provider providing a full suite of fund administration and back office services to funds and asset managers. The Company also provides a one-stop fund and asset management structuring solution on a turnkey basis.
BOV Fund Services is recognised as a fund administrator and licensed as a Company Services Provider by the Malta Financial Services Authority.
This article and all its contents are not to be interpreted as an offer, invitation or recommendation in relation to products or services offered by the BOV Group or by any other physical or legal third party. This article and all its contents do not constitute any basis of any contract or commitment. No guarantee declaration, explicit or implicit, is provided in relation to the correctness, accuracy, completeness or reliability of the information, opinions or conclusions expressed here. The contents of the article include only general information and are not intended to be complete and cannot substitute legal, financial, tax, investment or any other relevant advice. This information refers to the publication date of the article itself and therefore may be subject to change. This article must not be copied, distributed or reproduced in whole or in part.
Manager, Business Development, BOV Fund Services
Rebecca Xuereb holds the role of Business Development Manager at BOV Fund Services, Malta’s leading fund services provider, assisting fund managers and promoters from various domiciles in successfully structuring and redomiciling their funds and asset management operations in Malta, and offering a full suite of fund administration and back-office services.
Rebecca is also very active in promoting Malta as an ideal jurisdiction for alternative funds, and regularly participates in various events, sitting on panels at conferences and hosting informative presentations.