The Notified Alternative Investment Fund (“NAIF”) Regime is a new area of growth for the European Financial Services sector as it offers an additional, quicker and alternative route to the market, within just 10 days. According to Kenneth Farrugia, chairman of Finance Malta, thanks to the NAIF, Malta has once again placed itself at the forefront of regulatory innovation. The NAIF regime has met considerable praise beyond Malta’s shores as well, with James Williams from hedgeweek.com calling it a ‘regulatory masterstroke’.
Advantages of the Malta NAIFs: A Flexible, Alternative Fund Structure
The introduction of the NAIF has revolutionised the Maltese financial services sector. The NAIF itself as a product does not require a license, authorization or approval, but merely requires that the regulator, the MFSA, is notified of its existence. This has been welcomed as a refreshing change that will alleviate some of the onerous regulatory requirements which might have slowed down or exhausted the industry through over-regulation. Instead, the MFSA will supervise the fund manager, thus allowing the AIF itself to be notified so that the Authority can insert it into the list of records it maintains. This benefit is very attractive to fund managers seeking an efficient venue for domiciliation of their fund.
The NAIF is a highly flexible vehicle and lends itself to different structures. It may be established as any structure allowed under Maltese law including a SICAV, INVCO, incorporated cell company, RICC, limited partnership, unit trust or contractual fund. Such flexibility allows fund promoters to explore potential new regimes and will give investors the opportunity to invest onshore in a legal structure which is similar to what they are used to in the offshore world.
Additionally, the NAIF can also be used to market securitisation products.
Quicker Access to the Market through the Maltese NAIFs
Timing is of the essence. Thus, a product such as the NAIF which grants fund managers expedient access to market their funds to investors becomes a very attractive option. Once a notification has been submitted to the MFSA, the AIF will be included in the list of Notified AIFs within just 10 working days. Prior to sending a notification, the AIFM ideally requires guidance from legal advisors since he or she will need to submit certain statutory documents as part of the notification procedure.
Get in touch with us
Malta NAIFs: a EU law-compliant product
Although the NAIF is a quicker, more straightforward and cost effective regime than its other European counterparts, it is still fully compliant with EU law. What distinguishes it from other products is the fact that it shifts the onus of due diligence and responsibility of assessing the fund documentation, and making sure that everything is line with the requirements of the Directive under Maltese law onto the AIFM, rather than the fund itself. However, since the NAIF is an unregulated product, funds that target underlying assets that the MFSA deems risky and in need of regulation will be automatically excluded from being set up as a NAIF. Exclusions include:
- Funds that are self-managed;
- Funds that are managed by non-EEA AIFMs (at least until the AIFM's domicile receives third country passporting rights by ESMA i.e. Jersey and Guernsey);
- Loan funds;
- Funds that invest in non-financial assets as specified by the MFSA; and finally,
- Maltese collective investment schemes that already hold a license under Malta's Investment Services Act.
Optimal Tax Treatment for the Malta NAIFs
AIFs set up and launched in line with the NAIF regime will benefit from the same fiscal treatment as licensed AIFs. Thus, non-prescribed NAIFs will benefit from a complete tax exemption.
Marketed through Malta Licensed AIFM Passport
Malta Licensed AIFMs and EU AIFMs who are in possession of a management passport in terms of Article 33 of the AIFMD may establish a NAIF without the need to acquire authorisation from the MFSA. There is a possibility that third country AIFMs may also benefit from the NAIF regime in the future if the country where they have been established has been granted passporting rights under the AIFMD.
Get in touch with our experts
