Malta fund management companies invariably fall within the scope of a Category 2 Investment Services (IS) licence. This particular category of licence covers, inter alia, the management of assets belonging to third parties as well as the collective portfolio management of assets belonging to investment funds.
Alternative Investment Fund Managers (“AIFMs”)
A fund manager would require a Category 2 AIFM licence where it proposes to provide investment management services to Alternative Investment Funds (“AIFs”).
Permissible activities relative to AIFMs are limited to the following licensable activities:
- Investment management functions which the AIFM shall at least perform when managing an AIF:
- Portfolio management; and
- Risk management.
- Other functions that an AIFM may additionally perform in the course of the collective management of an AIF:
- legal and fund management accounting services;
- customer inquiries;
- valuation and pricing, including tax returns;
- regulatory compliance monitoring;
- maintenance of unit-/shareholder register;
- distribution of income;
- unit/shares issued and redemptions;
- contract settlements including certificate dispatch;
- record keeping.
- Activities related to the assets of AIFs, namely services necessary to meet the fiduciary duties of the AIFM, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and the purchase of undertakings and other services connected to the management of AIFs and the companies and other assets in which it has invested.
In addition to the permissible activities set out above, the MFSA may also authorise the AIFM to provide the following services:
- management of portfolios of investments including those owned by pension funds and institutions for occupational retirement provision in accordance with mandates given by investors on a discretionary, client-by-client basis; and
- non-core services comprising:
- investment advice concerning one or more of the instruments listed in the Act;
- safekeeping and administration in relation to shares or units of collective investment undertakings;
- iii. reception and transmission of orders in relation to financial instruments.
De Minimis AIFMs
AIFMs not exceeding the following thresholds may be licensed as de minimis AIFMs which are subject to a lighter degree of regulation:
- Either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manage portfolios of AIFs whose assets under management, including any assets acquired through use of leverage, in total do not exceed a threshold of EUR 100 million; or
- Either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manage portfolios of AIFs whose assets under management in total do not exceed a threshold of EUR 500 million when the portfolios of AIFs consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF.
Moreover, appropriate mechanisms are in place to facilitate the change from de minimis status to full AIFMD compliance once the operator feel that the expense and resource inherent in AIFMD compliance can be justified by the manager’s growth.
Category 2 AIFM licence holders may avail of the benefit of passporting such licence into any or all of the EU Member State countries by following some basic procedures of notification in accordance with the relative provsions of the AIFM Directive, thereby effectively enabling the Maltese AIFM to provide investment management services within the relevant Member State/s either (i) through the establishment of a branch or (ii) on a remote basis under the freedom of services provisions.
Passporting is not available to de minimis AIFMs to the extent that such operators do not opt to be subject to the full force of the AIFMD regime.
Malta’s investment services legislative regime is complemented by various other incentives to set up business in the jurisdiction including a corporate tax system whereby shareholders in Malta-based fund management companies could benefit from a net effective Malta tax rate of 5%, subject to proper tax structuring, and the highly qualified persons scheme whereby senior personnel relocating to Malta and employed by the fund management company may benefit from a favourable personal income tax rate of 15% subject to the satisfaction of certain requirements.
The aforesaid senior positions include, inter alia, Chief Executive Officer; Portfolio Manager; Chief Investment Officer; Senior Trader/Trader; Senior Analyst (including Structuring Professional); Chief Risk Officer (including Fraud and Investigations Officer); Chief Financial Officer; Chief Operations Officer; Head of Research; Head of Investor Relations and others.