Funds – Collective Investment Schemes

The regulatory framework of collective investment schemes is established in the Investment Services Act (ISA), which vests the responsibility for the licensing, regulation and supervision of collective investment schemes in the Malta Financial Services Authority (MFSA). A collective investment scheme licence is required to be obtained under the ISA in order to set up a collective investment scheme. Special regulatory regimes exist for professional investor funds, retirement funds, private funds and fund administrators.

Legal Form of Collective Investment Schemes (CIS)

A CIS can be set up in any of the following forms:

  • An investment company with variable share capital (ie SICAV). A SICAV is an open-ended fund which may take the form of either a private limited liability company or a public limited liability company, in both cases registered and incorporated in accordance with the Malta Companies Act.
  • An investment company with fixed share capital (ie INVCO). An INVCO is a closed-ended fund that may only take the form of a public limited liability company registered and incorporated in accordance with the Malta Companies Act.
  • A mutual fund, being a fund that is regulated by contractual arrangements made between investors and a management company, whereby the investors essentially entrust the management company with funds to be invested in terms of a pre-determined investment policy. Such mutual fund does not have a corporate nature and is set up in accordance with the Malta Civil Code.
  • A limited partnership duly registered in terms of the Malta Companies Act.
  • A unit trust, in which persons having funds available for investment may participate as beneficiaries of the trust and therefore benefit from any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever settled on trust. Such unit trust is set up in accordance with the Malta Trusts and Trustees Act.
  • A contractual fund, that is, a collective investment scheme established by means of a deed of constitution entered into by the manager and the custodian of such a collective investment scheme, under which the unit holders participate and share in the property of the scheme as evidenced by units issued by the manager.

Types of CIS

Retail CIS:
Being a CIS that is available to the general public, this is the most highly regulated CIS for investor protection.

Professional Investor Funds:
These funds are non-retail funds that target professional investors that fall within any of three categories being experienced, qualifying, or extraordinary investors. The category applicable would depend on the experience, knowledge and expertise of the investor eligible to participate and a minimum investment requirement is linked to each category. As a result, professional investor funds, are not subject to some of the usual restrictions on investment or borrowing that would be applicable to a retail CIS.

Private Collective Investment Schemes:
These are essentially of a private nature and limit the number of investors to a maximum of 15 persons. These are regulated by the ISA (Recognition of Private Collective Investment Schemes) Regulations and recognition by the MFSA is sufficient without the requirement to obtain a licence subject to the satisfaction of certain criteria being met.

Alternative Investment Funds (AIF):
These are funds that do not qualify as a UCITS scheme in terms of the UCITS directive and form a special class of funds.

Management of CISs

Funds managers that intend to manage a CIS are required to obtain a Category 2 licence.

With special reference to AIFs, following the implementation of the Alternative Investment Fund Managers Directive (AIFMD), fund managers that intend to manage an AIF (Manager) may potentially fall under the AIFMD. There are however limited exemptions in the sense that certain Managers may remain outside the scope of AIFMD if they fall within any one of the two criteria listed below:

  • A Manager that either directly, or indirectly through a company with common management and/or substantive direct or indirect ownership, manages portfolios of AIFs whose assets under management, including assets acquired through use of leverage, in total do not exceed a threshold of €100 million
  • A Manager that either directly, or indirectly through a company with common management and/or substantive direct or indirect ownership, manages portfolios of AIFs whose assets under management in total do not exceed a threshold of €500 million when the portfolios of AIFs consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of five years following the date of initial investment in each AIF.

Apart from falling within the criteria mentioned above, the Manager must comply with certain requirements in order to fall outside the scope of the AIFMD, in which case, the Manager will not benefit from any rights under the said directive.