Loan funds can be structured as PIFs or as AIFs. The Loan Fund Rules apply in addition to any laws, regulations or standard licence conditions that are already applicable to AIFs or PIFs. For further details on the law and regulations and license conditions, click here.
Loan Funds must be structured as closed-ended scheme (SICAVs with closed ended features)
Nevertheless, the fund manager may on a yearly basis opt to redeem and cancel any shares in accordance with the terms of the offer should the fund have excess liquidity.
In case of multi-fund PIFs, all sub-funds are to be licensed as āloan funds.ā
Loan funds can only be marketed to:
A loan fund is allowed to āinvest through loansā by either:
There are rules on who may be the loan issuance recipient. In summary, these are:
Additionally the loan issuance recipient must be prohibited from transferring such loan to a financial undertaking.
In the above context, the term āfinancial undertakingā shall be defined as:
Below is a summary of the applicable investment and borrowing rules.
For full details, visit the Funds-Axis Rules Library:
In addition to the above, the fund manager also needs to have arrangements in place for credit risk management and liquidity risk management.
This needs to include:
These requirements are further summarised below.
The fund manager is required to establish and implement a credit risk strategy and related policies in proportion with the scope and sophistication of the Schemeās activities. The credit policy will establish the framework for lending and guide the credit granting activities of the Scheme, which must include a risk appetite statement and address items such as target markets, portfolio mix, structuring of credit limits, processing and reporting.
The fund manager is bound to submit for approval by its governing body, the Schemeās strategy for the selection of risks and maximising the profits and returns.
The manager is required to employ an appropriate liquidity management system and adopt procedures which enable the monitoring of liquidity risk of the scheme and to ensure that the liquidity profile of the investments of the scheme complies with its underlying obligations.
Note: Whilst this feature is already provided for in the provisions of the AIFMD, the new Rulebook seeks to further build on this requirement using concepts normally applied in the banking sector, such as the liquid-asset proportion.
Disclosure to investors
Detailed disclosure obligations modelled on the disclosure provisions prescribed in the AIFMD as well as an annual report.
The fund manager must have sufficient financial resources and liquidity available to enable it to conduct business, and such organisation, systems, experience and expertise deemed necessary by the MFSA for it to provide management services to these funds.
The fund manager must also possess the required skills and expertise to ensure that any lending decisions are made with due consideration and will also have proven experience in the area of granting of loans including credit assessment, credit provisioning monitoring and control of exposures.