Notified PIFs (NOW including also self-managed PIFs) – what do they mean for the Maltese fund industry?
Malta’s past success story as a fund domicile has traditionally been founded on the Professional Investor Fund (PIF) product. This has gradually gained its popularity with fund managers around the globe, particularly small and medium sized managers, since it proved to be a robust product, affording a great deal of structuring flexibility which enabled them to materialize their innovative ideas in creating a product apt and appealing for their group of select investors, added to the fact that Malta offered attractive set up and running fees and costs. This hit the main targets of managers typically in search of offshore fund domiciles but with the advantage of offering them an onshore domicile situated in the EU.
The product at the time was mandatorily subject to local regulation, requiring a collective investment scheme licence issued by the MFSA in terms of the Investment Services act (The “ISA”), albeit the regulatory regime applicable to PIFs has generally been viewed as not being very restrictive and not amounting to heavy regulation. This proved convenient for some managers as they required or preferred to have the licence tag for their fund for one or more different potential reasons (which could be simply the preference of their targeted investors or could also amount to a requirement of the private placement rules of the territory/ies marked for the marketing and sale their funds). Other fund promoters and managers however did not share such requirements or preferences and simply viewed licensing as an unnecessary burden, particularly those managers which were already licensed and adequately regulated themselves as find managers.
With the advent of the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”) in 2011 an onerous regulatory regime was imposed on a whole myriad of non-UCITS fund managers, which naturally had the indirect consequence of tightening the whole regulatory regime for non-UCITS funds, including a number of the local PIFs existing at the time, which had to adapt to the new more stringent rules under AIFMD. A few years later, however, fully cognizant of the fact that AIFMD is a service regulation and not a product regulation instrument (which as such regulates the relevant fund managers and not the funds themselves), and taking comfort from the fact that investors of alternative investor funds are already adequately protected by the highly regulatory regime applicable to the managers subject to AIFMD, the MFSA admitted for the first time of a fund product established in Malta which would not necessitate a collective investment scheme licence under the ISA, namely the Notified Alternative Investment Fund (“NAIF”) introduced by Legal Notice 219 of 2016, as subsequently amended.
Following the coming into force of AIFMD, the traditional local less rigid PIF regime remained relevant in two main scenarios: (a) in case of PIFs managed by ‘de minimis’ managers or ‘de minimis’ self-managed PIFs (falling below the relevant thresholds imposed by AIFMD for the relevant manager or self-managed fund to be subject to such AIFMD); and (b) in case of PIFs managed by non-EU/EEA managers (whatever the AUM size), where the AIFMD would not for the time being apply.
On the basis of the experience acquired from, and the success registered by, the NPIF regime, in December 2023 MFSA extended the notified regime also to PIFs (the “Notified Professional Investor Funds” or “NPIFs”). The prospect of having a PIF operating without a collective investment scheme licence and being included in the list of NPIFs maintained by the MFSA within as short a period as ten (10) days from notification to the MFSA could not be resisted and withheld any longer from fund managers.
The main conditions, rules and requirements applicable to NPIFs are briefly summarized below:
- The PIF must be promoted solely to Qualifying Investors (as defined by MFSA Rules) and/or Professional Investors (as defined by AIFMD);
- All PIFs, whatever the legal form in which they are structured, and whatever asset classes they invest in, are eligible to be NPIFs, except PIFs engaging in Lending Activities as defined in the Loan Fund Rules issued by the MFSA;
- At least 1 director (or member of the governing body) must be resident in Malta and at least 1 director (or member of the governing body) must be independent from the Manager, the Custodian (where appointed), the Fund Manager, the Due Diligence Service Provider and the founder shareholders of the NPIF;
- The PIF must appoint a Due Diligence Service Provider, who would essentially be in charge of carrying out a thorough due diligence exercise to ensure that other service providers (except the appointed Fund Administrator) and functionaries, including the Board of Directors or other governing body), the founder shareholders and the MLRO (except where this is the appointed Fund Administrator) of the NPIF satisfy at the time of notification and on an ongoing basis, the fitness and properness standards expected by the MFSA. The Due Diligence Service Provider should be either a fund administrator duly recognized (licensed) by MFSA in terms of the ISA or a Company Service Provider (CSP) authorized under the Company Service Providers Act (Chapter 529 of the Laws of Malta) which is not authorized as an under-threshold CSP and is not an individual. In the absence of a licence being issued to the NPIF, the MFSA places a lot of reliance on the initial and ongoing due diligence carried out by the Due Diligence Service Provider;
- The PIF must appoint a fund administrator established in Malta and duly recognized (licensed) by MFSA in terms of the ISA to carry out NAV calculation, transfer agency, registrar, preparation of accounts and other fund administration services in respect of the NPIF. Whilst PIFs (and even other type of funds in Malta) are typically not required to have an administrator domiciled in Malta and may appoint a foreign domiciled administrator, in the case of NPIFs the MFSA preferred to have a locally established administrator within the regulatory reach of MFSA;
- Adequate safekeeping arrangements must be in place. In this respect the PIF regime, and also the NPIF regime, retained maximum flexibility, and such safekeeping arrangements could amount to the appointment of a custodian (whether established in Malta or outside Malta) or other arrangements proposed by the NPIF which fall short of the appointment of a custodian entity, provided these are deemed adequate in view of the nature of the assets of the fund.
Until very recently, the NPIF was also subject to the additional important requirement of the appointment of an external manager, being either a de minimis manager/AIFM duly authorized and licensed as a fund manager by MFSA in terms of the ISA, a de minimis manger/AIFM duly authorized in an EU/EEA State or a third country manager/AIFM authorised in a jurisdiction with which the MFSA has signed a bilateral cooperation agreement / MoU on securities or other forms of agreements / memoranda deemed acceptable by MFSA and which the MFSA deemed as being subject to an equal or comparable level of regulation as Malta. In this sense, MFSA wanted to place reliance also on the regulated status of the manager of the NPIF, similar to the situation with NAIFs.
Recently, however, in June 2024, the MFSA launched a consultation exercise seeking stakeholders’ views on extending the NPIF framework to include also self-managed NPIFs (apart from general features which a self-managed NPIF framework may have). The revised Rules extending the regime to self-managed PIFs have now been issued in February 2025. This constitutes a bold decision of the regulator in the right direction. Considering that investors and MFSA will be able to receive comfort from the fact that a locally regulated Fund Administrator and Due Diligence Service Provider will be appointed with the latter ensuring on-going satisfaction of fitness and properness standards by service providers, functionaries and other relevant stakeholders (including the Directors and Investment Committee members of the self-managed PIF), and considering also that the NPIF is restricted for marketing solely to non-retail investors (Qualifying and Professional Investors), it seems to be a sound decision to allow fund promoters to benefit from the speedy notification procedure and status of PIFs which are self-managed.