Alternative Investment Funds, or AIFs, are a form of collective investment scheme (CIS), similar in scope to UCITS, though not qualifying as such under the pan-European UCITS directive. Alternative Investment Funds are growing in popularity following the implementation of the EU 2011 Alternative Investment Fund Managers Directive (AIFMD).
As a result, there are currently over 100 Alternative Investment Funds domiciled in Malta; specifically appealing to hedge funds, private equity funds, real estate funds, and VC funds. More recently, with the advent of the blockchain technology sector and digital assets subsequent rapid growth in Malta, crypto funds and security token offerings which do not need and/or qualify for UCITS licences have sought AIF licences in Malta. Growth in AIF funds for digital assets has likewise been expedited by clear security token offering regulation by the Maltese Financial Services Authority (MFSA).
Like Professional Investor Funds and Undertakings for Collective Investments in Transferable Securities, crypto fund managers and security token issuers may incorporate an Alternative Investment Funds under several legal forms, including SICAVs, INVCOs, limited partnerships, unit trusts and contractual funds. AIF are also regulated under the Investment Services Act (1994) and must meet the statutory requirements of the MFSA before receiving a licence; however, Alternative Investment Funds may be established and marketed through the EU/EEA by crypto fund managers based outside of the EU, pending approval by the MFSA.
Key Features of Alternative Investment Funds
- European Access – Like UCITS, crypto funds and security token offerings licenced as Alternative Investment Funds are eligible to be passported throughout the EU/EEA, by extension of Malta’s membership of the EU common market. This is subject to agreement from and compliance with the relevant regulatory authorities in the host jurisdiction.
- Licence Classifications – Different licence classifications for AIFs are available depending on the crypto funds and/or security token issuers target investor base. Five classifications are available, including Alternative Investment Funds targeted to retail, experienced, professional, qualifying and extraordinary investors. Professional investors and experienced investors must have financial experience and/or have worked or are currently working for a financial institution. Qualifying investors must have net assets in excess of €750,000. Extraordinary investors are persons/entities with net assets exceeding €7.5 million. Subsequently, each AIF licence classification has different regulatory requirements from the MFSA.
- Multi-Fund Structure – Crypto fund managers and security token issuers many establish AIFs using a multi-fund structure, or umbrella fund; whereby two or more sub-funds/compartments, with different investment strategies, objectives or target investors, may be established as a single legal entity. As the application fee for sub-funds (€1,000) is half that of an entirely new fund and the sub-fund supervisory fee is €600 p.a. as opposed to €2,000 p.a. for new funds; sub-funds are a cost-effective way for crypto funds which do not qualify for a UCITS licence to establish funds with different objectives.
- Taxation and Listing – Crypto fund managers and security token issuers who wish to list their fund on the active and trusted Malta Stock Exchange may do so through an Alternative Investment Fund licence fund. As with other fund structures in Malta, AIFs are exempt from income and capital gains tax.
Alternative Investment Fund Licencing Procedure
Licencing an Alternative Investment Funds requires a successful authorisation from the MFSA. Prior to authorisation, crypto fund managers and security token issuers are required to gather comprehensive preparatory reports, including a proposal of their activities, fund scope, target investors and other supporting documentation.
Security token offering regulation in Malta is the same as that for traditional funds investing in securities and therefore crypto fund managers and security token issuers must ensure they meet the Investment Services Act regulatory requirements prior to licence application. Steps to obtaining an AIF licence includes three main phases:
- Preparatory Requirements – Crypto fund managers and/or security token issuers must prepare relevant detailed supporting documentation, as outlined above, in preparation for preliminary meetings with the MFSA. The MFSA will then consider the AIF proposal and either recommend the crypto fund for a draft application, or suggest revisions. The application fee is also payable at this stage.
- Pre-licensing Approval – Once a draft application has been reviewed and accepted, the MFSA will grant pre-licensing approval ‘in principle’; after which a crypto fund manager or security token issuer must finalise outstanding issues, then sign and resubmit the final application documents. Upon satisfactory completion of this stage, a licence will be issued.
- Post-licensing – At this stage, the MFSA will undertake a final review of the AIF application, before the commencement of business is authorised. Once approved, the crypto fund manager or security token issuer may formally begin marketing their fund.
ICO Launch Malta can assist your crypto fund in determining if an AIF is the correct licence structure for you and assist your crypto fund or security token offering during the AIF licencing process, including preparing your application.
Our award-winning services offer clarity in Maltese security token offering regulation, crypto fund consultation and establishment, and guiding our clients through CIS licencing processes. Contact us to discuss your individual crypto funds requirements.