With Malta’s ever-growing financial sector leading to an even bigger growth in the economy itself, investment funds have become a safe bet on this small island. Especially so, when one takes into consideration the advantageous tax treatment of foreign investors holding units in investment funds licensed in Malta and the regulatory framework which requires compliance with the highest standards. This leaves fund promoters with no choice but to set up an investment fund in Malta.
The next step would be to choose the structure of the fund and its regulatory regime. In Malta, the most popular structure is the investment company with variable share capital, more commonly known as the SICAV. SICAVs are ideal for investment funds set up as “open-ended” schemes, whereby the value of funds in the scheme fluctuates as investors are allowed to buy and sell their units in such schemes. SICAVs may be constituted as an “umbrella fund” or a multi-class fund. In the case of an umbrella fund, each class of shares forms a sub-fund and is treated separately from the assets and liabilities of each other sub-funds, in fact, it would have different records, accounts, statements. On the other hand, a multi-class fund does not have separate sub-funds and is constituted by different share classes.
The type of investment base used in such structures is up to the fund promoter, as there are different types of regulatory regimes which cater for the various needs investors might have. The main differing criteria is the experience of the people investing since each type of investment can be categorized as either retail or non-retail. A Retail investor is an ordinary man in the street, who invests from his own savings and in fact, these types of people normally negotiate smaller amounts and need further regulations to protect them as they are not well experienced. On the other hand non-retail investors, including Institutional Investors, include people who negotiate on behalf on investment banks, pension funds, and insurance companies amongst others. Therefore the risk taken will be bigger but at the same time, they will be more experienced.
Hence, keeping this in mind there are 4 main types of investment funds in Malta;
- Professional Investment Fund (PIF)
- Undertakings for Collective Investment in Transferable Securities (UCITS)
- Alternative Investment Fund
- Private Collective Investment Scheme
The Professional Investment Fund is a special class of collective investment scheme which is tailored specifically for experienced investors, or as previously mentioned Institutional Investors. In fact, such funds provide a “lighter” regulatory regime and more flexibility leading them to become amongst the most popular type of collective investment schemes.
Another two types of investment schemes are; Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund. The former are specific schemes open to retail investors that predominantly invest in transferable securities, such as shares or bonds. Being a fund open to retail investors, a UCITS Scheme is subject to various investment restrictions as means of protection for such investors. The second type of investment is the Alternative Investment Fund (AIF). This is“a collective investment scheme, including sub-funds thereof, which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors.” 1 Whilst the PIF is exclusively provided for and regulated by Maltese law, the UCITS and the AIF are mostly regulated by European Directives together with rule books adopted by the Malta Financial Services Authority (“MFSA”). Once licensed, these two types of funds may also be promoted and distributed in other European Countries following the submission of the relevant documentation to the MFSA.
Finally, the last type of Investment Scheme is the Private Collective Investment Scheme. This fund is not subject to any licensing requirements in terms of the law, however, it requires a Recognition Certificate issued by the Malta Financial Services Authority. No minimum amount is needed for investors to pool in, in fact, this fund is ideal to be used by family businesses. The only limitation of this scheme is that only 15 individuals can invest simultaneously.
This shall not be construed to be as advice but shall merely serve as a brief description of the process needed to set up an investment fund. If you would like to discuss this further please do not hesitate to contact us on [email protected] .