Attracting allcomers

Malta has developed a sound reputation as a fund domicle, and with it a healthy fund management and fund administration sector. Joining the EU in 2004 sparked it all off, and adopting the euro in January 2008 helped further by removing foreign exchange costs for firms dealing with other eurozone members.

Accession to the EU brought the stamp of approval to Malta's financial regulatory regime, and under the EU's UCITS (Undertakings for Collective Investment in Transferable Securities) legislation, Malta can market appropriately licensed funds throughout the EU.

The statistics tell the story. There were 401 funds or collective investment schemes (CISs) registered in Malta at the end of September 2009, of which 288 were hedge funds or professional investor funds (PIFs). The 328 locally based CISs had a net asset value of €6.5bn at the end of September 2009, according to the Malta Financial Services Authority (MFSA). This was a major advance on the situation in 2006, when there were 145 funds with a net asset value of €4.8bn; and in 2004 their value was only €1bn.

In February the MFSA signed a memorandum of understanding (MoU) with the China Securities Regulatory Commission to "protect and promote the development of the securities markets by providing a framework for co-operation, increased mutual understanding and the exchange of information". The MoU puts Malta's funds industry on the same footing as the major fund domiciles in the rest of the world, particularly in the EU, and will facilitate business for financial institutions in both countries. A similar agreement with the China Banking Regulatory Commission is expected to be signed shortly.

Chinese 'qualified domestic institutional investors' (fund managers) are now able to invest on behalf of Chinese investors into Malta-domiciled investment funds, both PIFs and UCITS funds, thereby opening up the sector to one of the world's largest pools of capital. The arrangement also makes it possible for Maltese fund managers to invest in China under certain conditions.

Fund managers

Running Malta's funds are 81 licensed fund managers and 13 fund administrators. Apex Fund Services (Malta), a local fund administrator which is part of this network, has its headquarters in Bermuda and around a dozen offices in other parts of the world. John Bohan, one of Apex's owners, who is based in Ireland, says that the "surge in demand for regulated products and UCITS funds, coupled with the requirement for a robust banking environment, make Malta a perfect choice as a funds domicile".

He says local laws make it easy to re-domicile funds to Malta from other approved jurisdictions, and the growth in the country's funds industry has created many opportunities for banks and others to get involved in fund management and administration.

Bank of Valletta Group (BoV), which owns one of the island's two main banks, has both a fund management arm, Valletta Fund Management (VFM), and a fund administration subsidiary, Valletta Fund Services (VFS). Both performed well last year in difficult circumstances.

"VFM's funds under management have grown to record levels, albeit with a substantial proportion being represented by the La Vallette Malta Money Fund on which minimal margins are earned," said BoV group chairman Roderick Chalmers in the company's latest annual report.

"VFS's portfolio of international business has shown encouraging growth, justifying the separate focus that was the rationale behind the establishment of this new and dedicated business entity, which is playing an important role in Malta's development as an international financial services centre."

An industry voice

Charles Azzopardi, vice-chairman of the Malta Funds Industry Association (MFIA) and managing director of HSBC Securities Services (Malta), a fund administrator, says the industry is now in its 14th year. "It began just after the necessary legislation, the Investment Services Act, was passed in 1994, after which the two major banks, Mid-Med Bank (now HSBC Bank Malta) and Bank of Valletta set up their respective fund management companies in 1995/96," says Mr Azzopardi.

"These companies issued funds for the local marketplace, consisting purely of traditional funds and directed towards the retail investor. By December 2003, there were 46 retail funds, with a net asset value of €830m, and a couple of professional investor funds of minimal values. Joining the EU in May 2004 gave Malta the international dimension it needed."

Mr Azzopardi says EU membership enhanced the island's reputation for financial services, allowed its already sound regulations to be harmonised to EU standards, "inspiring more confidence", and put Malta on an even keel with other EU jurisdictions because UCITS funds could then be registered in Malta and "passported" (ie, sold) in other EU countries. "Joining the eurozone in 2008 galvanised our position," he adds.

Member benefits: joining the EU in 2004 enhanced Malta's reputation for financial services. This was galvanised by the island joining the eurozone in 2008

A channel of communication

The MFIA represents fund managers, fund administrators and financial intermediaries selling investment funds. It was set up in 2003 by HSBC Global Asset Management and Valletta Fund Management, and it now has 16 members. "The objective of the MFIA is primarily to act as a channel of communication and to make representations to the Maltese government on matters including legislation and regulation, as well as to the MFSA on regulation that affects the business or professional interest of our members," says Mr Azzopardi.

"The MFIA also provides education and training for its members, promotes the development of the fund and investment management business in Malta, provides a professional forum for members and acts as its pre-eminent voice.

"Despite the global financial crisis and turmoil in 2008, Malta has weathered the storm quite well, as we saw fund promoters continuing to view Malta as an alternative and flourishing jurisdiction to domicile their funds, especially in the alternative investment funds space."

In value terms, the dramatic climb in assets was only arrested in the final quarter of 2008, with a sudden decline in the value of PIFs. This trend stabilised, however, last year and there is a lot of business in the pipeline that augurs well for this year.

"I expect that as the island increases its reach we will also see more fund managers coming here," says Mr Azzopardi. "The financial market turbulence is a negative, but it can also be considered a positive for us as fund managers look to move their funds to a more stable and recognised jurisdiction, and Malta can be that place."

Mr Azzopardi lists a number of factors that make Malta an attractive and alternative jurisdiction. "The island's only natural resource, excluding the sun and the sea, is its people. The Maltese have managed to adapt and develop not just over the past decade and a half, but over the centuries.

"So one of the big pluses, in my opinion, is the availability of high-calibre and multilingual people in the most essential sectors of the business, be it the regulator, the service providers and other professionals such as the legal and audit firms on the island. Where else can a fund promoter convene, within a short period of time, a week or so, meetings with lawyers, fund administrators, custodians and audit firms, and then the regulator? I have seen this happen.

"What is also important is the hands-on approach and flexibility of the single regulator, the MFSA, which will enter into discussions with the promoter at the outset and allow customised solutions, where applicable. Malta can offer the same comfort and robustness of a eurozone jurisdiction, but at a lower cost."