Maltese launch a new fund regime - but will it be a NAIF to attract investors?

Summary

In an attempt to keep pace with the new Luxembourg RAIF and Irish ICAV QIAIF regimes, the Malta Financial Services Authority (MFSA) is introducing, perhaps as soon as the end of May 2016, a new investment fund framework for Notified Alternative Investment Funds (NAIFs).

Under the new regime, AIFs which meet certain conditions can be “notified” to the MFSA - thereby becoming a NAIF. Unlike the current Malta professional investor fund (PIF) regime, such NAIFs will not need to be licensed by the MFSA nor will they be subject to ongoing regulation by it.

The new regime has two major advantages:

• time to market - since, unlike a Maltese PIF structure, a NAIF will not need to go through the MFSA’s authorisation process, it should be possible for it to be added to the MFSA’s online ”List of NAIFs in good standing” within ten business days of filing a complete notification pack, and
• given that the NAIF is an EU product, the AIFMD marketing passport will be available in relation to it, so a NAIF can be marketed cross-border to professional investors within the EEA without further regulatory obstacles being imposed.

For a review of the pros and cons of the alternative frameworks in Luxembourg, Ireland and Malta, see our elexica article The rise of the flexible Euro-AIF - a passport to success?

Looking in more detail at the proposed framework for NAIFs:

What funds can be NAIFs?

A NAIF is:

• an AIF
• not already licensed by the MFSA
• promoted only to Professional Investors and Qualifying Investors (see below), and
• managed by a full-scope AIFM, authorised (so, for the time being at least, EEA only) and regulated under the AIFMD.

A NAIF may be either open- or closed-ended and can be established as any legal structure currently allowed under Maltese law.

In addition to already licensed or self-managed AIFs, an AIF which invests in non-financial assets such as physical commodities, real estate or works of art cannot become a NAIF.

Who can invest in a NAIF?

NAIFs may be promoted to either:

• professional investors (either per se or elective) as under the MiFID definition or
• qualifying investors.1

in each case subject to any other restrictions on marketing applicable in the relevant jurisdiction.  For example, when marketing a NAIF in an EEA Member State under the AIFMD marketing passport, the NAIF may only be promoted to QIs who are not “professional investors” to the extent permitted in that EEA Member State.

How does an AIF become a NAIF?

The notification process comprises four key steps:

• the AIF’s governing body must pass a resolution approving a prospectus which complies with the requirements set out in the Maltese “Investment Services Rules for Investment Service Providers”
• within 30 days, the AIFM must submit a duly completed notification request to the MFSA
• within ten business days of a duly completed notification pack being filed with it, the MFSA will include the NAIF on its online “List of Notified AIFs in good standing”, and
• the prospectus is then dated.

At present, notification requests may only be submitted by an EEA AIFM (and one which is either licensed by the MFSA or in possession of a management passport under the AIFMD). However, a third country AIFM will be able to submit requests once the country in which it is established has been granted passporting rights pursuant to the AIFMD

The MFSA makes it clear that inclusion on its List does not imply that the NAIF is authorised, licensed or in any way approved by the regulator.

(Making changes to the NAIF’s prospectus follows essentially the same process - within 30 days of the AIF’s governing body passing a resolution approving the amendments, the AIFM submits the amended prospectus and the MFSA acknowledges the updated prospectus within ten business days of filing.)

A number of details regarding the new regime, however, remain to be clarified and the MFSA is expected:

• to confirm whether existing schemes will be able to switch to the new framework
• to make available a pro forma prospectus as well as templates and further documentation to assist fund managers.

Next steps?

The MFSA anticipates that it will be in a position to receive notification requests before the end of Q2 2016 and possibly as soon as the end of May 2016.

1  To be a Qualifying Investor, an investor must:

• invest a minimum of €100,000 in the NAIF and
• provide a written declaration to the NAIF and to the AIFM that they are aware of and accept the risk of investing and
• satisfy at least one of the following criteria:
  • a body corporate with (or part of a group with) net assets in excess of €750,000
  • an unincorporated body or association with net assets in excess of €750,000
  • a trust, the net value of whose assets is in excess of €750,000
  • an individual whose net worth (or joint net worth with their spouse) is in excess of €750,000
  • a senior employee or Director of Service Providers to the NAIF.