One of the more recent developments in the world of alternative investment is the Notified Alternative Investment Funds (“NAIF”). NAIFS are a type of collective investment scheme exempt from licencing, provided they are included in the Malta Financial Services Authority (“MFSA”) list. The structure of a NAIF in Malta is outlined comprehensively in the Investment Services Rules for Notified Alternative Investment Funds (“AIF”) (the “Rules”). These rules detail the creation, management, and operation.
NAIFs may be promoted exclusively to Professional Investors or Qualifying Investors and managed by a full-scope Alternative Investment Fund Manager (“AIFM”) authorized under Directive 2011/61/EU. The governing body of a NAIF (the “Board”), must include at least three members, with at least one residing in Malta and one being independent from all associated service providers. The Board is responsible for ensuring compliance with corporate governance standards and the insurance of proper business operations.
The notification process is strictly regulated by the MFSA and shall be done by an Alternative Investment Fund Manager (“AIFM”) who shall submit the request to the MFSA to include a NAIF in the official list. The AIFM must either possess a local investment services license or be authorised under the AIFM Directive. Third country AIFMs may also apply once granted passporting rights under the AIFM Directive.
Key documents required for notification include:
- a prospectus ensuring all disclosures are provided to the client;
- resolutions from the governing body confirming that the prospectus is compliant with all requirements; and
- various self-certifications and declarations confirming due diligence and competence.
NAIFs can take various legal forms, including:
- investment companies with variable or fixed share capital (“SICAV”);
- incorporated cell companies;
- limited partnerships;
- unit trusts; or contractual funds.
Funds must adhere to their stated investment objectives and are not restricted in terms of asset classes, though specific rules apply to those investing through loans or established as money market funds.
Eligible investors in NAIFs are categorized as Professional Investors or Qualifying Investors. Professional Investors are those treated as professional clients under Markets in Financial Instruments Directive (“MiFID”), while Qualifying Investors must invest a minimum of EUR 100,000 and meet certain financial criteria. Marketing to these investors in other European Union or European Economic Area states is subject to each Member State’s national laws.
The Board of the NAIF holds significant responsibilities, including acting in the best interests of the AIF and its investors, exercising reasonable care and diligence, maintaining sufficient knowledge of the fund’s business, and regularly monitoring delegated functions. Meetings must be held at the registered address in Malta and shall all be carefully minuted.
NAIFs shall ensure that the prospectus issued includes extensive information in their prospectus, including a disclaimer that the MFSA does not endorse or approve the fund.
The compliance function shall be managed by the AIFM’s compliance officer, unless alternative arrangements are approved by the MFSA. It should be noted that it shall be the AIFM’s responsibility to ensure the NAIF’s ongoing compliance with all applicable laws and regulations, including those under the AIFM Directive.
Anti-Money Laundering (“AML”) obligations require the appointment of a Money Laundering Reporting Officer (“MLRO”) by the Board of the NAIF, in agreement with the AIFM, who shall be independent. The MLRO can be an officer of the NAIF or the administrator, provided the latter is recognized and authorized by the MFSA. The Board shall always remain the ultimate responsible body for AML compliance and must have oversight over all AML issues.
In summary, the structure and operation of NAIFs in Malta are governed by a stringent regulatory framework aimed at ensuring transparency, investor protection, and compliance with international standards. The MFSA’s role is primarily supervisory, ensuring that NAIFs are removed from the list if regulations are not met, highlighting the importance of rigorous governance and due diligence in the management of these investment vehicles.
