Malta PIFs – Highwire Extensions

The most popular fund type in Malta is The Professional Investor Fund (PIF), which is a hedge fund product.

The PIF is highly flexible and the underlying assets in which these funds can invest range from transferable securities, private equity, immovable property and infrastructure, to the more complex asset classes pertaining to the world of debt financing and derivatives.

Whilst there are generally no asset eligibility rules, investment rules and no leverage or borrowing requirements, there are guidance notes on different types of PIF structures, including:

There are also investment restrictions in respect of diversification of risk in relation to PIFs targeting Experienced investors – who are more akin to retail investors.

PIF vs AIFMD

PIFs are a hedge fund product, but which fall short from being classified as an Alternative Investor Fund (AIF) having regard to the threshold requirements of the AIFM Directive (AUM below €100m unleveraged or €500m leveraged).

AIFs do not enjoy the same investment flexibility as PIFs and must abide by a number of transparency obligations.

PIFs are usually sold on a private placement basis and are not actively marketed to the public and Managers do not require the passporting rights that come with AIFMD.

For a summary of Malta AIFMD vs PIFs, click here.

Legal Basis

The principal legislation governing PIFs in Malta is the Investment Services Act, 1994 “ISA” as subsequently amended. A PIF licence is issued by the Malta Financial Services Authority (MFSA) once the PIF fully satisfies the requirements and criteria relating to its nature and purpose.

Legal Form

PIFS are mostly open or close-ended investment companies, but unit trusts, contractual funds and limited partnerships can also be used. Self-managed PIFs are also allowed and the manager may also act as the administrator.

A PIF may be also constituted as a multi-class fund (single fund with a number of share classes) or an umbrella fund (fund with a number of sub-funds and share classes).

Click here for the Funds-Axis Guide to Malta fund structures.

3 types of PIF

There are 3 types of PIFs:

PIFs targeting Experienced investors
PIFs targeting Qualifying investors
PIs targeting Extraordinary Investors

Investors

Investors in PIFs must be able to demonstrate that they possess the required expertise, experience and knowledge to make investment decisions and assess their risk. Such investors must satisfy at least one of the following conditions depending on the type of PIF they will be investing in.

INVESTOR TYPE	EXPERIENCED INVESTORS	QUALIFYING INVESTORS	EXTRAORDINARY INVESTORS
Minimum Investment
Setup Time	2-3 Months	2-3 Months	2-3 Months
Investment Restrictions	Yes	None	None
Borrowing Restrictions	Up to 100% of NAV	Up to 100% of NAV	Up to 100% of NAV
Offering Documents	Required	Required	Required or Marketing Documents

EXPERIENCED INVESTORS	QUALIFYING INVESTORS	EXTRAORDINARY INVESTORS
Minimum investment: €10,000/$10,000 o8r equivalent	Minimum investment: €75,000/$75,000 or equivalent	Minimum investment: €750,000/$750,000 or equivalent
Person having at least one year of relevant work experience in a professional position in the financial sector, or a person who has been active in such types of investments.	Person (or entity) must have net assets in excess of €750,000. If the PIF is established as a trust, this condition applies to the net value of the trust's assets. Individuals must meet these threshold either on their own, or jointly with their spouse. This is a mandatory condition.	Person (or entity) must have net assets in excess of €7.5m. If the PIF is established as a trust, this condition applies to the net value of the trust's assets. Individuals must meet these thresholds either on their own, or jointly with their spouse. This is a mandatory condition.
Reasonable experience in the acquisition or disposal of funds or instruments with similar risk profiles to that of the proposed PIF.	Reasonable experience in investment decisions on funds with a similar risk profile and in instruments of the proposed PIF.	The investor is a PIF promoted to extraordinary investors.
Having carried out investment transactions of a significant size at a certain frequency.	A senior employee director of service providers to the PIF.	A senior employee or director of service providers to the PIF.
Any other appropriate justification.	A body corporate or partnership wholly owned by persons or entities satisfying any of these criteria that is used as an investment vehicle by such persons or entities.	A body corporate or partnership wholly owned by persons or entities satisfying any of these criteria that is used as an investment vehicle by such persons or entity.
	An entity with at least €3.75m under discretionary management investing on its own account.
	The investor is a PIF promoted to qualifying or extraordinary investors.
	A relation or close friend of the promoters limited to 10 persons per PIF.

Service Providers

A summary of the service provider requirements is set-out below:

	EXPERIENCED INVESTORS	QUALIFYING INVESTORS	EXTRAORDINARY INVESTORS
Third Party Manager	Required or Self-Managed	Required or Self-Managed	Required or Self-Managed
Fund Administrator	Manager may delegate fund administration to third party administrator	Manager may delegate fund administration to third party administrator	Manager may delegate fund administration to third party administrator
Custodian	Required. Must be independent from fund manager	Optional, provided adequate safekeeping measures	Optional, provided adequate safekeeping measures
Auditor	Required	Required	Required
Money Laundering Reporting Office (MLRO)	Required	Required	Required
Compliance Officer (may also act as MLRO)	Required	Required	Required
Listing	Optional	Optional	Optional

Investment Restrictions

Below is a summary of the applicable investment and borrowing rules applicable to PIFs targeting Experienced Investors. For full details, visit the Funds-Axis Rules Library.

The fund PIF may hold ancillary liquid assets irrespective of its investment objective and policy
Up to 20% of assets can be in securities issued by the same body. This limit may be increased to 35%/ 100% in case where the money market instrument is issued or guaranteed by authorities in OECD or EU/EEA member states/EEA credit institutions
The limit above may be increased to 30% in case of transferable securities traded or dealt on a regulated market
Up to 30% of assets in money market instruments issued by the same body. Limit may be increased to 35%/ 100% in case where the money market instrument is issued or guaranteed by authorities in OECD or EU/EEA member states/EEA credit institutions
Up to 35% of assets in deposits may be held with a single body
There is no restriction applicable with respect to investment in a single investment fund provided it qualifies as a UCITS or other open-ended investment fund subject to the equivalent risk spreading requirements applicable to the PIF
There is a maximum of up to 30% of asset in any single investment fund not qualifying as UCITS or as other investment fund subject to the equivalent risk spreading requirements applicable to the PIF
PIF fund of hedge funds are to invest in at least 5 hedge funds
Exposure to a single counterparty is limited to 20% of total assets; such exposure may be reduced if acceptable collateral is provided by the relevant counterparty
For feeder fund PIFs. the Master PIF needs to satisfy the leverage restrictions
Up to 25% of assets – directly or indirectly (through an SPV) – can be invested in any one single immovable property
Property fund PIF must invest in at least 5 different properties in case it invests solely in immovable property
The PIF may invest up to 100% of total assets in any single property fund or SPV provided such fund or SPV complies with the investment, borrowing and leverage conditions applicable to PIFs targeting Experienced investors. This is permitted only if considered to be appropriate and in the best interest of investors and entails acceptable levels of risk and investment is made in accordance with good market practice and involves the provision of adequate collateral.
Direct borrowing for investment purpose and leverage via the use of derivatives is limited to 100% of the value of the PIF
The aggregate maximum exposure to a single issuer/ counterparty (through securities, money market instruments, deposits and OTC-derivatives) is limited to 40% of total assets
The PIF cannot enter into cross sub-fund investments (if case the PIF is established as a multi-fund).

Cross Sub-Fund Investment

As above, for PIF targeting experienced investors, there is a prohibition on cross sub-fund investment.

For other PIF’s, the requirements are:

The PIF may invest in shares of one or more sub-funds within the same PIF provided that this is permitted in the constitutional documents and Offering Memorandum of the PIF in question
A sub-fund is allowed to invest up to 50% of its assets in another sub-fund within the same PIF
The target sub-fund may not itself invest in the sub-fund which is to invest in the target sub-fund
Where the Manager of the sub-fund and the manager of the target sub-fund is the same (or in case affiliated), only one set of management fees (excluding performance fees), subscription and redemption fees shall be applicable