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Hedge Fund Monthly
 

Why are Fund Promoters Choosing Malta?

Nicholas Warren, Financial Services Consultant
Mamo TCV Advocates
October 2011
 

During the course of discussions with fund promoters, many different queries are posed on how alternative investment funds; referred to as Professional Investor Funds (PIFs) in Malta, may be set-up and structured. Such queries usually revolve around the financial services regulator Malta Financial Services Authority (MFSA), time to licence, the need of service providers (including Directors) to be established/based in Malta and their availability on the island, taxation issues, and obviously cost. Malta has been building its reputation as a flexible yet onshore EU domicile and is competing well with its larger and more established European competitors, which begs the question - why are fund promoters choosing Malta?

Malta distinguishes itself from its European counterparts competing for alternative investment funds and their managers. With an open-door policy adopted by the MFSA, fund promoters and service providers alike have on numerous occasions enquired on whether their strategy can fit into Malta's regulated environment.

A case in point was when a promoter wanted to assess the possibility of setting up a fund which would invest solely or principally into structured investments with only one type of underlying instrument, and to a limited extent in cash and money market instruments for cash management purposes. While emphasising the need for, and rigorously requesting and imposing the requirement of adequate risk diversification, the local regulator is flexible and minded to accept such proposals to the extent that diversification can be sufficiently achieved through other means, such as the diversification at the level of issuers of the structured instruments or in the basic components of the underlying  - be it currency rates, interest rates, etc.. The promoter in such case was inter alia surprised by the MFSA's time response, as in other jurisdictions it would have taken him a number of weeks, possibly months to get a response from the regulator.

In another situation, a fund promoter indicated that the fund which he intended to set-up would need to make use of multiple custodians/prime brokers. The reason behind such request was two-fold: (i) to minimise the inherent institutional risks that the fund may face by entrusting all of its assets to one entity, and (ii) his preferred custodian was reluctant to provide custody services in respect of one type of instrument in the fund's proposed portfolio. This was indeed possible within the current domestic regulatory framework for PIFs.

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