Structuring Malta Alternative Investment Funds

Mr. Nicholas Warren | 04 Jul 2018

Fund Adminitration

Alternative Investor Funds ("AIF/s") are a pan-European branded investment fund created with the sophisticated and professional investor in mind. AIFs are an EU regulated product which derieved as a consequence of the Alternative Investment Fund Managers Directive ("AIFMD").  The AIFMD define an AIF as:

“A Collective Investment Scheme ("CIS"), 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, and which does not qualify as an Undertaking for Collective Investment in Transferable Securities ("UCITS") Scheme in terms of the UCITS Directive.”

This regime captures, hedge, real estate, private equity and venture capital funds as well as all other funds which fall outside the scope of the AIFMD.

Besides the ability to passport one’s fund throughout the European Union which is their most favourable benefit, AIFs are a special class of collective investment scheme which may be structured in a variety of ways. Their flexibility provides for single-fund or multi-fund structures, thus combining different investment strategies or asset classes in different sub-funds. Moreover, AIFs may also be managed internally (self-managed).

AIFs carrying out activities in Malta are regulated in Malta and require an investment services licence which is issued by the Malta Financial Services Authority (“MFSA”).  For regulatory purposes, Malta Professional Investor Funds (“PIFs”), and Malta Private Collective Investment Schemes would not be captured by the definition of an AIF in terms of the AIFMD.

Structuring an Alternative Investor Fund

The local legislative framework permits AIFs to be established using a variety of legal forms, each having characteristics suited for particular needs. A Maltese AIF may be set up as:

  1. A limited partnership or partnership en commandite;
  2. A unit trust, constituted by a trust deed between a management company and a trustee;
  3. A mutual fund;
  4. An investment company with variable share capital (“SICAV”);
  5. An investment company with fixed share capital (“INVCO”).
  6. SICAVs can also be established as umbrella funds.

AIF structured as a Limited Partnership

A Limited Partnership is structured very similarly to a SICAV and may be constructed as a multi-class partnership or a multi-fund partnership with its capital divided into shares. It requires a registered office in Malta where details of its limited partner/s are stored and requires at least one general, fully liable partner. Both the limited partner and the general partner may be limited liability companies registered in any jurisdiction.

AIF structured as a Unit Trust

AIFs structured as unit trusts are constituted by a trust deed between a management company and a trustee in terms of the Trusts and Trustees Act. This option is available to both resident and non-residents who may opt for a variety of trust structures, including constructive trusts, discretionary trusts, fixed interests trusts and purpose trusts. A trust which has been established in a foreign jurisdiction may be recognised in Malta, thus providing for the possibility of setting up an investment fund as a foreign law trust.

AIFs structured as Contractual funds 

A Contractual fund is created by virtue of an Act established through a deed of constitution entered into for such purpose by the manager and the custodian of the AIF. A contractual fund may be licensed as a multi-fund or a multi-class AIF. It may also be set up as one or more special purpose vehicle which would be a company, thus granting access to double tax treaties for one’s AIF.

AIF structured as an Investment company

When setting up an AIF as a limited liability company, it may be established as an open-ended investment company (SICAV) or a close-ended investment company. 

A SICAV will be regulated by the Companies Act and may be set up as a public or private company with variable share capital. As a private company, there are certain restrictions which will apply; a private company may not issue any invitations to the public to subscribe to any of the shares or debentures of the company, a restriction which does not apply to a public company. 

SICAVs are the most popular structure since they allow for the introduction of additional investors without having to wait for the liquidation of an existing investor. SICAVs may also be formed as Incorporated Cell Companies as per the Companies Act. In such a scenario, each incorporated cell within an incorporated cell company is a limited liability company which is endowed with legal personality.

On the other hand, INVCOs are public companies which are limited to the investment of their funds, particularly securities or retirement funds. These companies are regulated by the Companies Act and hold a fixed share capital. INVCOs are also subject to the following restrictions: the INVCO’s holdings in other companies not being investment companies with fixed share capital may not exceed 15% by value of its investments; distribution of the INVCO’s capital profits is prohibited by its memorandum and articles of association; and the INVCO may not retain more than 15% of income derived from securities.

A common benefit of the SICAV and INVCO structures is that they may operate as a multi-fund structure. Thus, the share capital may be divided into different classes of shares, with each class of shares representing a distinct sub-fund of the AIF.

AIF structured as an Umbrella Fund

Umbrella funds (also known as multi-fund AIFs) are single legal entitles made up of two or more sub-funds or compartments. Each sub-fund/ compartment would have different investment policies and objectives, as well as different asset class investments and different target clients. Documentation specifying the investment policy, objectives and restrictions specific to each sub-fund is required. The assets and liabilities of each sub-fund are distinct and seperate from the assets and liabilities of the other sub-funds of the Scheme, thus creating a seperate patrimony although one legal entity is present.

An AIF may be established either as a third party managed AIF, or a self-managed (internally managed) AIF. The parties to an AIF structure would typically be a Board of Directors composed of at least three members, a fund manager or else an investment committee with portfolio managers, a fund administrator, a custodian, Compliance and Money Laundering Reporting Officer.

Malta AIF Application & Supervisory Fees

 

 

Kindly download our Fund Formation Document and send it to fsu@cclex.com. A member of the financial services team will get in touch to discuss your needs. Alternatively you may reach us by calling on +356 2205 6200  or +356 2205 6415. 


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