Alternative Investment Funds (AIFs)

Malta was one of the first EU jurisdictions to formally implement the Alternative Investment Fund Managers Directive (AIFMD) and is today home to more than 100 Alternative Investment Funds (AIFs).

The AIFMD will act as a catalyst for further expansion in the coming years, attracting non-EU managers to set up shop in Malta. In addition to the newly introduced Alternative Investment Fund (AIF) regime that allows managers to launch funds under the AIFMD, the island’s successful Professional Investor Fund (PIF) regime was retained offering fund promoters diverse structuring opportunities.

Alternative Investment Funds (AIFs) are fast becoming one of Malta’s favoured investment fund vehicles. A key benefit of AIFs is the availability of marketing passporting provisions introduced by the Alternative Investment Fund Managers Directive (AIFMD), which substitutes the existing EU member state’s national private placement regimes when marketing AIFs to eligible investors within the EU.

Key Features of AIFs

Legal Form: An AIF can be established as a SICAV, SICAV Incorporated Cell Company, INVCO, limited partnership, unit trust, contractual fund 

Legislation: Investment Services Act (Marketing of Alternative Investment Funds) Regulations, Investment Services Act (Alternative Investment Fund Manager) (Passport) Regulations, Investment Services Rules for Alternative Investment Funds 

• Permitted Business: EU Passport 

Investor Base: Retail AIFs or Professional AIFs. AIFs authorised in terms of the Investment Services Act can be marketed to Professional Investors as defined in MiFID and/or to Qualifying Investors having a minimum investment requirement of €100,000. 

Offering Document: Required 

Investment Restrictions: Yes, mainly in the case of Retail AIFs. AIFs for Professional or Qualifying Investors are not subject to any investment restrictions. 

Borrowing Restrictions: Retail AIF may borrow up to 10% of its assets on a temporary basis subject to risk exposure not exceeding 110% of its assets. AIFs for Professional or Qualifying Investors are not subject to any borrowing restrictions. 

Fund Manager: An AIF can be managed in two ways: Should the AIF be third party managed, then the AIFM must be authorised as an AIFM in terms of the AIFMD. Should the AIF be self-managed, then the Board of Directors of the AIF will set up an Investment Committee composed of, at least, three persons (one member must be resident in Malta). Self-Managed AIFs are technically AIFMs and would thus need to comply to all the provisions of the AIFMD concerning the AIFM.

Custodian: The AIF must appoint such credit institution having substance in Malta and authorised by the MFSA. 

Compliance Officer: Required. 

Money Laundering Reporting Officer: Required. 

Auditor: Required. 

Fund Administrator: The role of the administrator may be carried out either by the AIFM or alternatively may be delegated to third-party administrator. 

Prime Broker and Counterparties: The AIF may appoint one or more prime brokers or counter parties. 

External Valuer: The valuation function is performed either by an external valuer, being a legal or natural person independent from the AIF, or by the AIFM. However, in the latter case, the valuation task must be functionally independent from the portfolio management and the remuneration policy and other measures ensure that conflicts of interest are mitigated and that undue influence upon employees is prevented. 

Initial share capital: €300,000 (self-managed AIF) 

Annual report: Required. 

Listing: Optional. 

Taxation: Exempt from income and capital gains tax (depending on whether the fund is classified as a “prescribed fund” or a “non-prescribed fund”) Where an AIFM is not appointed, the AIF shall be subject to all the Standard Licence Conditions prescribed in the Investment Services Rules for Alternative Investment Funds.