Recent statistics issued by the Malta Financial Services Authority (MFSA) show that over 10% of funds domiciled in Malta are Alternative Investment Funds (AIFs) recorded in the list of notified AIFs or “NAIFs”.
This confirms the rapid growth of the NAIF since its launch in 2016 as a new investment framework to provide a compelling route to market for smaller and emerging hedge fund managers. So what has made the NAIF so popular?
Key Features and Benefits of a NAIF
Short time to market
Perhaps the main benefit of using the NAIF is its short time to market. In contrast with other licensed fund products, such as the AIF and the Professional Investor Fund (PIF), a NAIF does not need to go through the MFSA’s authorisation process. The MFSA will proceed to include the AIF in the List of Notified AIFs within 10 business days from the date of filing of a complete notification pack.
The responsibility for filing the notification pack rests with the Alternative Investment Fund Manager (AIFM), which can either be domiciled in Malta or another EU member state (or outside the EU subject to third-country management passport rules), meaning the fund is therefore indirectly supervised by the competent supervisory authority of its AIFM. The AIFM must ensure that before submitting a notification request, the AIFM shall carry out the necessary due diligence process to ensure that the service providers and governing body of the AIF are fit and proper as specified by the competent authority.
EU Passporting
Since the NAIF is fully compliant with AIFMD, it can make use of the AIFM marketing passport for marketing to qualifying EU investors on a cross-border basis. Where the AIFM intends to passport the NAIF on a cross-border basis, it may do so as defined in the regulations set out by the Investment Services Act (Marketing of AIFs) or as otherwise permitted in the applicable jurisdiction that the NAIF is being passported to.
Flexibility
NAIFs are very flexible in terms of structure and investment strategy. They can be established as any structure under Maltese law including a SICAV, INVCO, incorporated cell company, RICC, limited partnership, unit trust, or a contractual fund. Additionally, a NAIF can be set-up as an umbrella structure, but they cannot be self-managed. NAIFs established as private equity funds and which invest in immovable property and certain non-financial assets (e.g. vintage cars, works of art, precious metals) can also be included in the list of NAIFs. Funds which are established as loan funds and which invest in other non-financial assets cannot become NAIFs.
The Notification Process
Although the NAIF is not subject to the standard licensing procedure, it is still subject to a Notification process as follows:
- The Board of Directors of the NAIF shall approve a resolution certifying that the Offering Documents of the NAIF satisfy the minimum criteria as prescribed by the MFSA;
- A written request by the AIFM in respect of a NAIF and its sub-funds, if any, to be included in the list of Notified AIFs in the form and manner as required by the MFSA;
- The AIFM shall submit the duly completed written notification together with the relevant documents within 30 calendar days from the date of the Board of Directors’ resolution of the of the NAIF whereby approving the NAIF’s Offering Documents and prior to the effective date of the Offering Documents; and<
- The competent authority should include the AIF in the List of Notified AIFs within 10 working days from the date of filing of the notification request together with the completed required documentation.