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AIFMD

sum of its parts

Malta: Fund Distribution Is The Sum Of Its Parts

1024 573 Ken Carmody, Finscoms

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Fund distribution plays an enormous role in the success of an investment fund. But what often overlooked elements play an enormous role in successful fund distribution? The answer is fund marketing and fund communications.

Strong marketing and communications strategies create strong distribution. Cut distribution open and it bleeds marketing and communications. Most asset managers refer to fund distribution as fund marketing but it’s vital to differentiate and understand each component.

Fund Marketing
Traditionally, fund prospectuses are seen as the main way to reach the investor by fund managers. And often oblige by sending out large, bland, monotonous and indigestible documents. On average, institutional investors receive 45 prospectuses a quarter and 10% receiving more than 100. Only 15% of these get passed the initial filtering stage. Less than 0.2% are actually successful in attaining investment. Pdf’s are being ripped from emails by many company firewalls and the hassle for the investor to have the pdf released becomes another boundary to penetration. Is it any wonder we are starting to hear slogans such as ‘Death to Pdf 2016!’ and ‘We are pdf deaf!’. In this post AIFMD world using ‘push’ marketing across global markets is an expensive way to attain very low penetration.

To overcome you must adapt. A dynamic fund marketing strategy will steer the fund toward reverse solicitation, inbound rather than push marketing. Spray and pray marketing is not effective. Those achieving the highest rates of penetration now rely on a strong brand and make the most of their marketing assets such as their website and reach prospects through video, webinars and social media. Many funds build a website on the premise that ‘my competitors have one so I got one’. The function of the website must be addressed. It can be a revenue generator, a communications tool, a value add to clients/investors. Asset managers are adopting social media as regulatory groups recognise it as suitable means to communicate. Social media can help create communities, promote without bombarding, become a thought leader or a subject authority.

Fund Communications
A fund is required to put out communications to stakeholders to satisfy fiduciary, regulatory and legal obligations. You don’t have to see this as an administrative drudge; a fund can use these obligations to strengthen your relationship with the investor and other parties. Change communications strategy regarding compliance to an open, transparent and well designed communication to investors. For example, with 54% of investors unhappy with the level of provided transparency compared to 78% of fund managers who believe they provide enough, create competitive advantage by addressing this clear disconnect. Speak the investors’ language, let them see how well the fund is being managed and see the relationship solidify. There is plenty of scope for this:

  • NAV publication
  • Meeting requirements in relation to Key Investor Information Documents (KIIDS) being provided to investors before they invest in a UCITS
  • Publication of semi-annual and annual financial statements
  • Shareholder notifications
  • Notices for Shareholder General Meetings
  • Key performance indicators such as investment performance versus benchmark

The fund’s message must be consistent across all mediums to avoid confusion and keep focus on the core message. The smart fund manager will deliver messages about updates and services through social media, the website, intranets, extranets. It is advisable to communicate regularly and stay in line with the investment philosophy and the strategy of the firm, this helps provide a ‘true to label’ comfort level for the client/investor. At all times funds must ensure that their communications are fully compliant.

Fund Distribution
The asset manager’s distribution strategy should include fund marketing, fund communication, knowledge of distribution channels and regulation.

Knowledge of the distribution channels per targeted jurisdiction is of course vital for building an effective distribution strategy. Each market differs from the next in terms of public offering listing, regulated public distribution, private placement, local distribution networks, regulatory requirements and more. The distribution network is still viewed as complex and somewhat opaque. A fund should make sure to complete full due diligence on the distribution network and on would be distribution partners. It is essential that the transfer agent and distributor used have solid know-your-customer and anti-money laundering procedures. From there the fund needs to grow a strong relationship with the local distributors and agents on a business and operations level.

Complying with local regulatory requirements is an area that needs constant supervision as regulations are constantly changing. Asset managers working with fund lawyers will need to get to grips with regulatory requirements on local agents, eligibility, investor disclosure, registration and continued registration, and marketing.

An adept asset manager will be looking at what the future holds for the industry and will have the fund prepared. For the near future in the asset management sector we can see the following:

  • An almost complete move from the traditional style of marketing to digital marketing. And the ‘Death of PDF’ in 2016.
  • An even greater evolution of fund products to match investor demand
  • The emergence of new distribution channels
  • The wide use of video to engage prospects taking into account the IT savvy nature of the ‘next generation of investors’

In Summary
Fund distribution is not complete without fund marketing and fund communication. These two components are often neglected and can result in the fund making a negative impression unbeknownst to the fund manager. In a congested sector, of over 25,000+ funds, investing in marketing and communication post AIFMD is critical. It is no coincidence that the most successful funds have strong brands and use communication strategy as a competitive advantage. Having a strong brand and identity helps strengthen the trust between investor and the fund. Strong communication strategy strengthens the relationship between the investor and the fund. Thus building a solid platform to increase the reach of fund distribution.

Malta-NAIF

Notified Alternative Investment Funds: Malta’s novel investment product

1024 512 Fiduciary Management

malta

During the post-AIFMD era, whereby most jurisdictions seem to have fallen into a regulatory hibernation with reference to funds, Malta has once again proven to be abreast of developments. The Malta Financial Services Authority (‘MFSA’) has recently announced the launch of a new framework applicable for notification of Alternative Investment Funds (the ‘Notified AIFs’) which will be promoted to Qualifying or Professional Investors (as defined below).

The new framework will be applicable to collective investment schemes which are not in possession of a licence issued by the MFSA, in terms of the Investment Services Act (Chapter 370 Laws of Malta), and are managed by a full-scope Alternative Investment Fund Manager (‘AIFM’), authorised and regulated under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (‘AIFMD’). In respect of such a collective investment scheme, an AIFM, which is in possession of either (i) a licence granted by the MFSA under the Investment Services Act or (ii) a management passport under Article 33 of the AIFMD, shall make a notification to the Regulator undertaking responsibility for it and for the fulfilment of its obligations. Third country AIFMs will be able to submit a request for notification of an AIF once passport rights under the AIFMD have been extended to their country of establishment.

Under the novel regime, the Notified AIFs may be established as either closed-ended or open-ended and can avail themselves of any legal structure from the wide spectrum already in place, catering for both corporate and unincorporated forms (e.g. SICAV, INVCO, Incorporated Cell Company, Incorporated Cell of a Recognised Incorporated Cell Company, contractual fund etc.). However, the following types of collective investment schemes shall fall outside the scope of the notification process: (1) funds which do not fall under the definition of ‘AIFs’, (2) self-managed AIFs, (3) AIFs which are sold and promoted to investors other than those who fall under the definition of ‘Qualifying’ or ‘Professional Investors’ (see below), (4) AIFs managed by third country AIFMs (pre-passport), (5) loan funds and (6) AIFs that invest in non-financial assets such as antiques, works of art etc. (currently real estate funds are excluded from the notification process as well but this will most probably be amended as per MFSA’s preliminary feedback).

As stated above, Notified AIFs may be marketed only to Professional and Qualifying Investors. ‘Professional Investors‘ are investors who are considered to be professional clients or may, on request, be treated as professional clients within the meaning of Annex II to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (‘MiFID’). ‘Qualifying Investors‘ (a new regulatory term introduced by MFSA) are defined as those investors who (a) invest a minimum of EUR100,000 or its currency equivalent in the AIF – which amount shall not be reduced below this threshold at any time by means of a partial redemption, (b) declare in writing to the AIFM and the AIF that they are aware of and accept the risks associated with the proposed investment and (c) either have net assets in excess of EUR750,000 or are senior employees or Directors of service providers to the Notified AIF.

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As soon as the duly completed notification pack (the notification request along with a Prospectus and supplementary documentation) has been filed with the MFSA, the Authority will proceed to

include the AIF in the list of Notified AIFs within ten business days. The same period applies in case of amendment of a Notified AIF’s Prospectus as well. Such inclusion shall not be construed as licence, authorisation or approval on behalf of the MFSA whereas a list of Notified AIFs in good standing (hereinafter referred to as the ‘List’) will be maintained and updated on the Authority’s website. The procedure used for the notification of AIFs shall also be used for the notification of additional sub-funds.

Since the new framework essentially places reliance on the AIFM’s regulated status, it follows that the said AIFM has increased powers and responsibilities placed on its shoulders to offset the lack of direct prudential regulation with reference to the investment product. In view of such reliance policy, the AIFM, prior to submitting a request for the AIF’s inclusion in the List, is required to perform the ‘fitness and properness’ test on both the service providers as well as the governing body of the AIF and may therefore veto any appointment thereof on such grounds. Furthermore, any rights (other than any rights to income or capital) of any founder or similar shares must be transferred to and exercisable only by the AIFM upon inclusion of the AIF in the MFSA’s List.

The attractive tax regime currently applicable to licenced collective investment schemes (based on the dual classification into prescribed and non-prescribed funds) will be extended to the Notified AIFs as well, thus easing the investors’ minds. This decision was hailed by the industry as it put an utterly appealing package deal on Malta’s investment table, placing the country once again in the vanguard of pioneering jurisdictions.

Euro

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF – or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the NF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF – or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the NF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and should in no way be construed as advice. Specialist advice should be sought about your specific circumstances.

Malta

What You Need To Know About Malta’s Notified Alternative Investment Funds

1024 683 DF Advocates

valletta

The Malta Financial Services Authority (‘MFSA’) has launched the Notified Alternative Investment Funds (‘NAIFs’) regime through the Investment Services Act (List of Notified AIFs) Regulations (the ‘Regulations’) thereby setting the scene for fund promoters to launch AIFs through Malta via a light touch notification procedure without the need of going through a full licensing process.

 

Who May Launch a NAIF?

In terms of the Regulations a NAIF may be launched by full-Scope AIFMs authorised by the MFSA in terms of the Investment Services Act to provide fund management services to AIFs, or alternatively, an EU AIFM having passported its fund management licence to Malta in terms of Article 33 of the AIFMD. Third country AIFMs may also submit requests for a notification of an AIF if passporting rights have been granted to the country where the AIFM has been established.

What Type Of AIFs May Be Launched Under The Regulations?

The Regulations apply to AIFs which are to be managed by an external AIFM and launched with the intention to be marketed to professional investors and/or qualifying investors.

The Regulations do not apply to AIFs in possession of a collective investment scheme licence, or to:
(a) AIFs which are not externally managed by an AIFM;
(b) AIFs which are not marketed and sold exclusively to professional and/or qualifying investors;
(c) AIFs established to invest through loans;
(d) AIFs which invest in non-financial assets as specified by the MFSA.

AIFs which are in possession of a collective investment scheme license cannot be converted into a NAIF.

 

What Form Can The NAIF Take?

The Regulations apply to AIFs set up under any of the following legal structures (whether open- or closed-ended):
(a) SICAV (an investment company with variable share capital);
(b) INVCO (an investment company with fixed share capital);
(c) SICAV ICC (an incorporated cell of a SICAV set up in terms of the Companies Act (SICAV Incorporated Cell Company) Regulations;
(d) RICCs (an incorporated cell of company set up as Recognised Incorporated Cell Company);
(e) Limited partnership;
(f) Unit trust;
(g) Contractual Fund.

The Regulations provide that the notification process may only be availed of by AIFs promoted to professional or qualifying investors, and to AIFs which are not in possession of a collective investment scheme licence.

 

The Notification Process

The NAIF regime aims at providing Alternative Investment Fund Managers (“AIFMs”) with a solution to market AIFs within the EU as early as ten (10) working days from the date of filing a duly completed notification pack with the MFSA.

Due Diligence – The AIFM shall carry out the due diligence process on each service provider and member of the governing body of the AIF to ensure that they satisfy the high standards of fitness and properness expected by MFSA.

Notification Request – AIFM shall submit a request for inclusion by MFSA of an AIF or for one or more sub-funds of a NAIF in the List of Notified AIFs.

The AIFM must submit the following documentation together with the aforementioned notification request:
(a) A prospectus containing the minimum criteria prescribed in the relevant investment services rules and duly compiled having regard to the template made available by MFSA;
(b) A resolution approved by the governing body of AIF certifying that the prospectus of the AIF satisfies the minimum criteria prescribed by the MFSA in the applicable investment services rules;
(c) A self-certification by the AIFM that, having regard to any delegate manager(s) or advisers it has in place, it has the necessary competence and experience to manage the AIF and monitor effectively any delegate;
(d) A joint declaration by the AIFM and the governing body of the AIF by which each undertakes responsibility for the AIF, including, inter alia, the obligations arising under the AIFMD;
(e) A declaration by the AIFM confirming that it has carried out the necessary due diligence with regard to the service providers of the AIF and the governing body of the AIF. This declaration must include a statement that the AIFM is satisfied with the outcome of this due diligence exercise and there are no untoward features which need to be brought to the attention of the MFSA.

The MFSA shall include the AIF in the List of NAIFs within ten (10) working days from the date of filing of the duly completed notification request together with the accompanying documents. Thereafter the prospectus may be dated.

 

EU Passport

Given that the NAIF is an EU product, the AIFMD marketing passport will be available in relation to it, so a NAIF can be marketed cross-border to professional investors within the EEA without further regulatory obstacles being imposed.

 

Tax

AIFs set up and launched in line with the NAIF regime shall be fiscally treated in the same manner as licensed AIFs and therefore non-prescribed NAIFs will benefit from a complete tax exemption.

 

Conclusion

The lighter touch nature of the Regulations renders the setting up and launching of EU AIFs via Malta easier, quicker and surely cheaper. It can safely be stated that with the introducing of this product Malta has once again placed itself at the forefront of regulatory innovation in Europe making it a preferred destination and base for the fund industry.