New investment fund rules set out to solve time to market issues

Last February, the Malta Financial Services Authority (MFSA) announced its intention to implement a new set of rules to govern the notification (as opposed to the licensing) of Alternative Investment Funds or ‘Notified AIFs’ or ‘NAIFs’, as they are commonly referred to.

With the rules now in force, and the first Notified AIF being registered on the 21st July 2016, a number of fund managers may solve time to market pressures via the Notified AIF regime which, in essence, allows eligible investment funds to be registered within a 10 working day period from due notification, without being subject to ongoing supervision.

In accordance with the rules, the Notified AIF regime is limited to those investment funds that, not being in possession of a license issued by MFSA, are nevertheless managed by a full-scope Alternative Investment Fund Manager (AIFM) and are marketed to Qualifying or Professional Investors.

Furthermore, the rules governing Notified AIFs also exclude the following investment funds from the scope of the notification process:

1. Funds which do not fall under the definition of AIFs;
2. Self-managed AIFs;
3. AIFs managed by third-country AIFMs (pre-passport);
4. Loan Funds;
5. AIFs that invest in non-financial assets such as antiques and works of art.

In terms of structure, a Notified AIF may be established in any one of the following forms:

1. An investment company with variable share capital (SICAV);
2. An investment company with fixed share capital (INVCO);
3. An incorporated cell company;
4. An incorporated cell of a Recognised Incorporated Cell Company;
5. A limited partnership;
6. A unit trust;
7. A contractual fund.

The Notified AIF framework can be compared to the Reserved Alternative Investment Fund framework in Luxembourg, with the principal difference being that in the latter regime the investment fund is established through notarial attestation as opposed to a notification process. It is often argued that the Maltese regime allows for a higher degree of investor protection in virtue of the direct involvement of MFSA in the notification process.