In October of last year, the Malta Financial Services Authority (MFSA) published a circular regarding the proposed introduction of a rule in the MFSA’s Rulebook for Professional Investor Funds (the PIF Rulebook) permitting cross sub-fund investments by Maltese Professional Investor Funds (PIFs) targeting Qualifying Investors or Extraordinary Investors. A copy of the original circular to which GANADO Advocates provided its comments can be obtained here.

The MFSA has today issued its Feedback Statement setting out its conclusions and the relevant new Rule. A copy of the Feedback Statement can be downloaded here.

The main features / requirements for cross sub-fund investing (investing the assets of one sub-fund in shares of another sub-fund of the same umbrella) by Maltese Qualifying Investor Funds (QIFs) or Extraordinary Investor Funds (ExtraIFs) will be:

  • QIFs and ExtraIFs formed as multi-fund SICAVs with segregated sub-funds will be clearly permitted to make cross sub-fund investments. It should be noted that cross investments by sub-funds will continue to be prohibited for UCITS, Retail Non-UCITS and Experienced Investor Funds, although the MFSA indicates that it may examine the possibility of opening this feature up to these types of funds in future as well as AIFs in the new AIF Rulebook.
  • QIFs and ExtraIFs wishing to make cross sub-fund investments will need to expressly provide for it in both: (a) their Memorandum or Articles of Association (M&A) and (b) their offering documentation.
  • Up to 50% of the NAV of a sub-fund may be invested into another sub-fund.Circular cross sub-fund investment will not be permitted (the investee sub-fund cannot invest back into the investor sub-fund).
  • Where the Manager of the two sub-funds is the same or an affiliate of the other Management Fees (excluding performance fees), Subscription Fees or Redemption Fees should only be charged once (up to the extent or portion of the investment in the other sub-fund.
  • Cross investments are only to be counted once for the purposes of counting any capital requirements of the fund (for self-managed funds).
  • Voting rights (if any) in relation to shares held by another sub-fund are to be suspended / disapplied.

The Feedback Statement also indicates that amendments to the Companies Act (Investment Companies with Variable Share Capital) Regulations (S.L. 386.02) (SICAV Regulations) are awaiting publication. The amended SICAV Regulations will clearly provide that Multi-fund SICAVs authorised as PIFs targeting Qualifying Investors (QIFs) or Extraordinary Investors (ExIFs) that have segregated sub-funds may (provided provision is made in their M&A and the offering documents) invest the assets of one sub-fund in shares in another sub-fund laying to rest any legal doubts as to whether these should be automatically cancelled. Maltese umbrella funds with cross investments between their sub-funds in breach of the amended SICAV Regulations will have a 6 month grace period within which to regularise their position (amend their M&A / Offering Memorandum or redeem). The Feedback Statement also notes that the new Rule will come into effect once the amendments to the SICAV Regulations are published in the Government Gazette.

For more information or if you have any questions, please feel free to contact the author or any of the Key Contacts for GANADO’s Investment Management & Funds Industry Grouping.