By Dr Kurt Hyzler, CSB Advocates – Malta recently reinforced its position as a progressive hedge fund jurisdiction within the EU when, on 27th June 2013, the Malta Financial Services Authority (MFSA) announced that it was the first member state to have fully transposed the Alternative Investment Fund Management Directive (“AIFMD / Directive”) into Maltese law.

During the implementation process, one of the dilemmas faced by the MFSA was the viability of retaining the Professional Investor Fund (“PIF”) regime which, as at the end of 2012, accounted for more than 84% of all collective investment schemes licenced in Malta. Mindful of this, the Authority will continue to grant PIF licences in terms of the updated Investment Services Rules for Professional Investor Funds in the following scenarios:

• The PIF is licensed as a ‘de minimis’ self-managed Alternative Investment Fund;
• The PIF is managed by a de minimis Alternative Investment Fund Manager (“AIFM”);
• The PIF is managed by a non-EU AIFM, subject to the relevant conditions of the AIFMD in terms of which EU-Member States may allow AIFMs to market to professional investors in their territory;
• The PIF is managed by an AIFM in full compliance with the AIFMD.

Whilst an AIFM may be appointed to manage a PIF, doing so would create an additional “layer” of regulation, requiring the PIF to comply with the rules applicable to PIFs as well as, indirectly, those applying to the AIFM in terms of the AIFMD.

Thus, a promoter wishing to licence a collective investment scheme in Malta would have the option of applying for a PIF licence, an Alternative Investment Fund licence (in full compliance with the AIFMD), or a PIF that is also AIFMD compliant; with only the latter two licences being able to benefit from the passporting rights built into the AIFMD.

Here we should note the derogation which the MFSA successfully negotiated at EU level prior to the transposition of the AIFMD in respect of the appointment of depositaries. AIFs (self-managed) and AIFMs licenced in Malta would, until the 22nd July 2017, be able to appoint a depositary that is AIFMD-compliant from another EU or EEA Member State rather than just a depositary from Malta. After 22nd July 2017, the AIFM licenced in Malta would be required to appoint a Malta-licenced depositary.

Also worth noting is the approach taken by the MFSA in respect of the applicability of the AIFMD remuneration policies and practices. In summary, the MFSA has taken an official view that the AIFMD remuneration policies and practices shall apply at the level of the AIFM – specifically to those categories of staff, including senior management, risk takers, control functions, and any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the risk profiles of the AIFMs or of the AIFs they manage.

What this effectively means is that in circumstances where the AIFM delegates to any third party any portfolio management or risk management functions, the third party would not be subject to the MFSA’s scrutiny in respect of its remuneration policies and practices.

Malta’s proactive approach towards the implementation of the Directive sends a clear message to the hedge fund industry – Malta continues to be the jurisdiction of choice for fund promoters.

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