Professional Investor Funds (“PIFs”) are a Malta licensed type of funds providing a lighter yet robust regulatory regime when compared with UCITS or AIFs. This blog explains the key advantages, legal form and regulatory structure of a PIF.
Key Advantages
PIFs can be used in any type of investment strategy and are most popular with venture capital, private equity, immovable property and family business.
The following are the key advantages:
Low set-up and annual costs
Tax advantages to promoters, managers, funds and investors
Quicker to set-up, particularly in case of self-managed
No investment restrictions
Allow for non-Maltese service providers, such as fund managers and custodians
Can be combined with blockchain technology, with Malta being a leader in the area.
Legal Form
A PIF may be set-up as an open-ended, close-ended or a combination of both. It may take various legal forms, including that of a Company, Partnership, Trust or Foundation.
The most common form is a SICAV Company, under which, a Memorandum and Articles of Association, personal questionnaires on the proposed director/s and founder shareholder/s, together with the offering prospectus are required. In case of funds involving crypto, a preliminary meeting with the Malta FSA is also required.
Board of Directors
The Board of Directors is expected to have at least 3 members, with one being resident in Malta and who can also act as Compliance Officer. In approving prospective Directors of a PIF, the MFSA will consider their collective expertise, prior experience and knowledge on matters relating to principles of good corporate governance and regulatory issues. In case where an Investment Committee will not be appointed, such expertise would also need to include asset management.
Fund Management structure
The management of a PIF may be structured as a Self-managed or Externally managed one.
Self-managed PIF
This is a widely used approach in that it can simplify the process, reduce costs and create tax efficiency on the promoter and/or founding shareholders' net fees.
As from the above structure, the Board of Directors is vested with the overall responsibility, including the discretionary management of the assets and the governance of the SICAV and its fund/s. It will be also responsible for the appointment of the service providers.
The Board of Directors may consider appointing an Investment Committee composed of at least 3 persons acceptable to the MFSA and which committee shall perform the day-to-day investment management of the fund’s assets and part of the work can also be sub-delegated to Portfolio or Investment Manager/s. One member of the Investment Committee should be a resident of Malta. Any sub-delegated Portfolio Manager or Investment Manager does not require to be based in Malta.
If a self-managed fund exceeds Eur100m (if leveraged) or Eur500m (if unleveraged and having a redemption gate of at least 5 years) it would be required to comply with the specific provisions of AIFMD.
Externally managed PIF
Where the Board appoints an external Manager, the latter will assume the discretionary asset management of the PIF and will also be responsible to appoint the remaining service providers.
Such Manager may be established in Malta or outside Malta. If established in Malta, the proposed Manager should be in possession of a Category 2 Investment Services Licence and be duly licensed and authorised by the MFSA for such work. If the Manager is established outside Malta, the MFSA will conduct its “fit and proper” test. If such Manager is an AIF Manager, the PIF will become subject to AIFMD.
Shareholding structure
A typical set-up would involve the creation of at least 2 share classes.
Voting Shares are issued to the SICAV’s Founding Investors, providing them with the effective control over the structuring and general operations of the PIF, and in case where such investors are also managing the PIF, this class will be also used for the accumulation of fees in a tax efficient way. Non-Voting Shares are issued to Investors in the PIF and these can be further sub-divided in line with their rights and obligations, this possibly resulting in different NAV prices, fees, currency per class, etc.
The initial share capital value depends on whether the PIF is self-managed or externally managed. A self-managed one is subject to an initial share capital of Eur125,000, which amount can be paid by either class.
Investment policies and restrictions
PIFs are exempt from risk spreading and/or diversification requirements and can thus be fully invested in only one investment. They do not have borrowing restrictions, and except in cases of open-ended Property Funds, there are no leverage restrictions.
Investors type
PIFs' eligible Investors are required to satisfy certain criteria based on their wealth and/ or experience, with the regulatory regime being proportionate to the minimum entry threshold. An investor in a PIF must invests a minimum of Eur100,000 or its currency equivalent and satisfies a wealth criterion of Eur750,000 or else prove to be a senior employee or director of a service provider to the PIF.
Taxation
A fund having more than 15% of its assets situated outside Malta enjoys tax exemptions on income and capital gains. There is no net asset value tax and no VAT is applicable on services which are core and essential to the management or arrangement of the scheme and its funds.
Fund’s shareholders who are not residents of Malta are exempt from Malta tax on income or capital gains, transfer of units or subscriptions. The fund managers or promoters can also utilise the Maltese fiscal advantages and exemptions, thus reducing their tax to 5% or 0%, depending on the methodology adopted.
No VAT is applicable on services which are core and essential to the management of the scheme and its funds.
Listing & Tokenisation
A PIF can be listed on a traditional exchange such as the Malta Stock Exchange and its shares can also be tokenised and thus become exchangeable over the blockchain.
Listing increases liquidity and transparency, this also facilitating investments by Institutional Investors. Tokenisation can expand this further, allowing for 24/7 trading on the secondary market as well as efficiency on KYC & AML.
For further information please contact Fiduscorp:
Mario Buttigieg - Managing Director
Email or Skype: mario@fiduscorp.com
Tel or Whats App: 00356 99829824
Disclaimer Copyright Notice: ©2018 FIDUSCORP Limited. The contents of this article have been prepared for informational purposes only and do not constitute or contain any type of advice. Neither the publication of such information nor your receipt of it will create a commercial or legal relationship. Consequently, you should not act or rely upon the information contained in this article without seeking professional council. All rights reserved.