The Malta Financial Services Authority has published encouraging figures showing a huge growth in assets domiciled on the island due to the economic pick-up and regulatory improvements
According to figures just published by the Malta Financial Services Authority (MFSA), the total NAV of investment funds managed in Malta has grown by 70.6% in the last 24 months. This news has been welcomed by the industry as a clear sign that financial operators are making headway in providing high-end services to local and foreign investors. It has also been taken as evidence of renewed consumer confidence in the market generally and in the investment services industry in particular.
These results have been achieved in the face of stiff competition from overseas products that are freely available on the local market, subject to licensing from the MFSA. Competition also comes from other quarters as the Maltese also have a propensity for investing their savings both offshore and in the booming local property market.
Recent company announcements that Maltese funds have performed well in 2003 are likely to boost management and administration activity even further. Valletta Fund Management (VFM) has announced very positive results for the year ending 30 September 2003 and has increased its investor base to 35,000. In line with international trends there has been a shift to bond-based funds, underlined by a diversification into sterling and euro denominated bond funds.
Encouraging performances by companies listed on the Malta Stock Exchange during the last quarter as well as the marked improvement in the valuations of the equity markets internationally are, however, pulling investors back towards the equity sector.
HSBC Fund Management (Malta) has also registered a sharp increase in funds under management in 2003 and has introduced plans to launch a number of innovative investment products and widen its range of services. HSBC Structured Funds Sicav, which recently held its annual general meeting, announced that during the financial year ending July 2003 its funds had performed well above the markets on which they are based.
Skills base widens
A build-up in skills these last few years has turned the fund management and fund administration sector into a target for growth. This development has been influenced by a number of factors.
Some established operators such as VFM, which started off as a joint venture between the Bank of Valletta and Rothschild Asset Management in 1995, have played an important part in the build-up of management know-how.
Meanwhile, a number of hedge fund managers previously based in countries such as Austria, Switzerland and the US have made Malta their home, most likely having been drawn to the place by the local lifestyle and benign climate as much as by business sense. Indeed, the expatriate community now includes a sizable number of stockbrokers, commodity traders and advisers to high net worth individuals operating out of Malta, with the resulting synergy between local and international firms becoming increasingly evident as they settle into the local business and social fabric.
Maltese graduates in accountancy, economics and other disciplines, usually holding masters degrees obtained in the UK, continental Europe or the US, or having had some experience in related business overseas, are also taking up posts with fund managers and other international niche players. This has resulted in a healthy knowledge-sharing combination that has further contributed to the dynamism of the sector and opened up new opportunities for Malta in the outsourcing business.
Cognisant of this, the MFSA and industry associations are now looking towards encouraging more training and specialisation in certain key areas in order to ensure that current service levels are sustained.
In a significant development that followed the acquisition of Rothschild Asset Management by Insight Investment Management (the asset management arm of the HBOS Group) in 2003, VFM has been appointed to manage funds investing in the emerging markets of the Mediterranean and Gulf region, a clear indication that the industry is spreading its wings.
Until recently, the MFSA"s policy regarding professional investors had only catered for one type of non-retail fund, namely that promoted to institutions and high net worth individuals. While the Professional Investor Funds (Pifs) available to date on the local market were not subject to any borrowing or investment restrictions, the type of investor authorised to invest in these funds, referred to as 'authorised" investor, had been subject to a minimum investment threshold of $100,000.
Aware of the need for another product specifically targeting seasoned investors, the MFSA has now adopted a variant of the current Pif regime in order to cater for such a market. This new framework addresses the niche that has evolved in between the retail fund business and the professional fund business and has been developed to accommodate another category of investment funds besides those promoted to 'authorised" investors.
The new category will apply to funds that target 'experienced" investors who may have less expertise and risk bearing capacity than institutional or high net worth investors but are nonetheless knowledgeable investors.
Accordingly, although additional requirements to those currently applicable to authorised investors shall apply, Pifs promoted to 'experienced" investors shall be subject to less onerous regulatory requirements than are applicable for retail schemes. The minimum investment threshold applicable to experienced investors will be $20,000 as opposed to the $100,000 threshold for authorised investors.
This represents yet another step in the development of the legal framework for the funds and securities industry in Malta, an industry born out of the consolidation of financial services regulation that took place in the mid-1990s and which owes its rapid expansion to local capital which sought to invest in alternative products to the ones traditionally offered by banks and insurance companies.
Today, the funds sector has grown into a fully-fledged international industry supported by a strong number of licensed investment intermediaries. Although most of the initial growth had been in the retail funds category, interest in the setting up and management of professional investment funds aimed at institutional and high net worth individuals has gained ground since the necessary framework was put in place in 2000. The new framework for experienced investors is fully in keeping with the MFSA"s role of promoting competition and choice in financial services.
Investment services are regulated by the MFSA under the Investment Services Act. Apart from the licence required for the investment vehicle itself, the type of licence required by financial intermediaries operating in or from Malta depends on the level of service provided. These fall into four broad categories:
&149; Investment advisory and administration services
&149; Fund management services
&149; Dealing for own account or underwriting
&149; Custody services.
An externally appointed manager or custodian of a Malta-based Pif may be based in Malta or overseas. A manager who is not licensed in Malta may only be accepted provided they are considered to be of sufficient standing and repute by the MFSA. In the case of a manager who holds a licence to act as a fund manager in an European Union, EEA or OECD country, the MFSA will rely on checks carried out by regulators in the home country.
The MFSA has recently also refined its policy regarding the treatment of back office services to the investment services industry. Companies providing routine administrative services to Pifs or other licensed entities no longer require a licence and are approved by the MFSA following a fast track recognition procedure. These services typically include routine administration services, bookkeeping services, pricing of the fund"s investment portfolio, performance reporting, preparation of contract notes and similar activities.
With regulations implementing the EU single passport coming into force on 1 May a number of international investment firms are actively considering basing some of their operations in Malta. Adopted by the EU in 1993, the single passport will now allow Malta-based investment firms the full freedom to provide specified services in other member states under MFSA licensing and supervision.
This also means that Maltese intermediaries providing qualifying services would be able to transact freely with clients in other member states on the same terms and conditions as business transacted in their home country. The EU will also be widening the scope of the current Investment Services Directive to encompass investment advisers and the provision of other investment services in the near future allowing the supply and demand for financial instruments to interact freely on a Europe-wide basis.
Against this kind of backdrop. all indications are that the investment services scene is in for a fresh burst of activity. Malta will definitely not be out of it.
Total NAV of investment funds managed in Malta has grown by 70.6% in the last 24 months.
A number of hedge fund managers previously based in countries like Austria, Switzerland and the US have made Malta their home.
Aware of the need for another product specifically targeting seasoned investors, the MFSA has now adopted a variant of the current Pif regime in order to cater for such a market.
Square Mile’s series of informal interviews
'An entirely different beast': How have emerging markets, Asia and Japanese equities evolved over the past decade?
Talking Strategies: In the video below, Jupiter's fund managers discuss how changing tides over the past two decades have resulted in emerging markets, including EMD, and Asia and Japanese equities to become a core part of many wealth manager portfolios....
Spent 20 years with Aviva
Latest news and analysis