Following doubts in regard to the actual application of the 50% limitation set out in the above SLCs, the MFSA was requested to shed some light and clarify the situation in relation to Limits Applicable to Cross Sub-Fund Investment in Malta. Cross sub-fund investments are regulated in the MFSA’s Investment Services Rules, specifically in two sets of rules. Firstly, there are two relevant SLCs in the Investment Services Rules for Professional Investor Funds, namely SLC 1.42(b) of Part BII and SLC 1.41(b) of Part BIII, which provide that a sub-fund may invest in units of one or more sub-funds within the same scheme as long as this is permitted by the constitutional documents and the Offering Memorandum of the relative Scheme, and provided that “the sub-fund is allowed to invest up to 50% of its assets into another sub-fund or sub-funds within the same scheme”. Secondly, there is SLC 4.08(b) of the Investment Services Rules for Alternative Investment Funds, which basically reiterates what has been noted but with reference to AIFs.
On the 6th February 2014, the MFSA’s Communication Unit issued an explanatory note on limits applicable to cross sub-fund investment in Malta. In essence, the Authority acknowledged that the 50% limitation on cross-investments by a sub-fund applies in the ambit of any investment “in any one other sub-fund of the same scheme, but not to the collectivity of investments by such sub-fund in all the other sub-funds of the same scheme”. In short when explaining the lmits applicable to cross sub-fund investment, the MFSA confirmed that subject to certain conditions, a sub-fund of a PIF or of an AIF which is constituted as a SICAV is allowed to invest up to 50% of its assets into another sub-fund or sub-funds within the same umbrella scheme. While the explanatory note is a temporary measure seeking to address the lack of clarity in this regard, the MFSA has declared that it shall be amending the relevant rulebooks in due course, in an effort to guarantee clear and consistent interpretation.
