Alternative Investment Funds (“AIFs”)

The Alternative Investment Fund Managers Directive (“AIFMD”) is a 2011 EU Directive regulating the marketing and management of funds, excluding UCITS funds, within the EU. The AIFMD and its regulation was transposed within the Investment Services Act in July of 2013. The Directive defines an AIF as:

A collective investment scheme, including sub-funds thereof, which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and which does not qualify as a UCITS Scheme in terms of the UCITS Directive.

Therefore, hedge funds, private equity funds, real estate funds, venture capital funds, and others all fall within the scope of AIFMD.

It should be noted that holding companies, institutions for occupational retirement, employee participation schemes, securitisation vehicles and private collective investment schemes fall outside the scope of the AIFMD.


The implementing procedures of the AIFMD subjects fund managers to an authorisation, or registration, requirement as well as a number of ongoing obligations such as investor disclosures, regulatory reporting, the role of the depository and remuneration. Essentially, the Directive would concern:

  • Fund Managers established in the EU managing and / or marketing Alternative Investment Funds (“AIFs”), and outside the EU;
  • Fund Managers established outside the EU managing and / or marketing their AIFs in the EU;
  • Collective Investment Schemes (“CISs”), other than UCITS, marketed in the EU or managed by an EU/EEA manager of alternative investment funds

AIFs carrying out activities in Malta are regulated in Malta and require a Collective Investment Scheme licence issued by the Malta Financial Services Authority (“MFSA”). For regulatory purposes, retail non-UCITS, Professional Investor Funds (“PIFs”), and Private CISs would not be captured by the definition of an AIF in terms of the AIFMD.


The main purpose of the AIFMD is to create a harmonised Pan-European passport allowing managers of alternative investment funds to market AIFs to EU-based professional investors through a one regulator.

Currently, the passport is reserved to authorised EU AIFMs of EU AIFs. Until 2018, non-EU AIFMs may continue to market AIFs to professional investors across the EU provided that they comply with national private placement regimes (“NPPRs”) of each member state.

On the 30th July 2015, ESMA issued the advice on the application of the passport to non-EU AIFMs and non-EU AIFs and its opinion on the functioning of the passport and the NPPRs. ESMA has identified twenty-two countries for which extension of the passport should be assessed, of which, the list includes the BVI, Isle of Man, Guernsey, Jersey, Hong Kong, Switzerland, the US, Mauritius, and the US Virgin Islands. Out of these, ESMA advised that Jersey and Guernsey should have an extension for the passport and Switzerland’s extension should start as from 1st January 2016. ESMA emphasised that it will deliver further advise in the coming months.


In June 2013 the MFSA updated its Investment Services Rulebooks as part of Malta’s implementation of the Alternative Investment Fund Manager Directive. The Investment Services Act, 1994 provides the statutory basis for regulating Collective Investment Schemes constituted in or operating in or from Malta. AIFs are a special class of collective investment schemes which fall within the scope of this Act.

Fund Promoters may elect to apply for a license as an Alternative Investment Fund Manager enabling them to launch a Malta-domiciled Alternative Investment Fund which allows the passporting of the AIF into other EU member states without having to fulfil separate licensing requirements in each jurisdiction in which the fund is being promoted. In this instance, the AIF may be marketed to professional investors as defined by MIFID.

The Malta-domiciled AIFM will also benefit from Malta’s attractive tax regime which through the application of shareholder refunds more commonly results in an effective tax cost of 5%.

It is still possible to apply for a PIF license in either of the following cases:

  1. Applicants who opt to apply to be licensed as a “de minimis” self-managed AIF;
  2. Applicants who opt to apply for a PIF licence provided the PIF is managed by as “de- minimis” AIFM;
  3. Applicants who opt to apply for a PIF licence provided the PIF is managed by an AIFM in full compliance with the AIFMD; and
  4. Applicants who opt to apply for a PIF licence provided the PIF is managed by a non-EU AIFM in terms of the relevant conditions of the AIFMD under which other EU-Members States may allow them to market to professional investors in their territory.

The lighter touch “de-minimis” AIFMD regime applies in respect of fund managers whose assets under management:

  • Do not exceed €100 million, or
  • Do not exceed €500 million, where there is no leverage and where investors may not effect redemptions for a 5-year period

In such cases the Fund may be launched as a self-managed Professional Investor Fund (”PIF”), without the need to establish a separate entity appointed as the Fund Manager. The self-managed PIF option therefore mitigates the more onerous requirements of the AIFMD and may well work for promoters who do not wish to access EU investors in a wider manner, such as small to mid-sized managers.


An AIF may appoint service providers as it deems necessary. The AIF is obliged to appoint an AIFM, a Custodian/Depository, an Auditor, a Compliance Officer and a Money Laundering Reporting Officer. The AIF and its respective service providers shall comply with all the applicable Maltese and EU laws to which they are subject.  The Investment Services Rules, on the other hand, list down the below key features for an AIF licensed in Malta

  • The AIF is obliged to appoint:
    • AIFM (either self-managed or externally-managed)
    • Custodian
    • Auditor
    • Compliance Officer
    • MLRO
  • The AIFM may:
    • Either be established in Malta with a CAT 2 licence and authorised as an AIFM
    • Or a European AIFM
  • An AIF is not obliged to appoint an Administrator
    • When an administrator is not appointed, the AIFM shall be responsible for the administration function
    • When the administrator is based in Malta, it should hold a “recognition certificate” from the MFSA
  • The Custodian need not be resident in Malta
    • If based in Malta, it should hold a CAT 4 licence
    • Else, based in the EU licenced as a “credit institution” as per 2006/48/EC
  • The AIFMD sets-out the criteria of the appointment of a Depository instead of the custodian, namely:
    • No redemption rights for a period of at least 5 years from initial investments
    • Do not invest in assets which need not rest in custody
    • Invest is issuers or mon-listed companies to have control
  • The AIF may appoint one or more Prime Brokers or counterparties
    • There should be a written agreement between the AIFM (obo the AIF) and the PB / Counterparty
  • In order to enable the compliance function to discharge its responsibilities properly, the AIF must have a Compliance Officer in place
    • Responsibility of the AIF’s compliance with its licence conditions rests within the Board of Directors (or GPs)
    • The MFSA is to be notified in advance in cases of appointment/change of the compliance officer
    • The MFSA reserves the right to object for the appointment
  • A Compliance Report should be prepared, at least, on a semi-annual basis and held at the registered office of the AIF
    • Such report is to be addressed to the Board / GP
    • Such report should list:
      • Any breaches to Investment Restrictions
      • Any complaints from investors and how these were handled
      • Any material valuation errors and how these were handled (0.5% of NAV)
      • Any other material compliance issues during the period
      • A confirmation from the MLRO that all local prevention of money laundering requirements have been satisfied
  • Responsibility for the AIF’s compliance with the prevention of money laundering regulations rests within the Board of Directors (or GPs)
    • An AIF must, at all times, have an MLRO in place
    • This is subject to the MFSA’s consent (has the right to object)
    • Any changes in MLRO should be notified to the MFSA
  • The AIF should appoint an Auditor approved by the MFSA
    • The AIF shall not appoint an auditor, either an individual or firm, who is:
      • A director, partner, qualifying shareholder, officer, representative, or employee of the AIF
      • A partner of, or in employment of, any of the above
      • A spouse, partner, child or relative to above
      • A person who is not independent of the AIF
      • A person disqualified by the MFSA
  • The External Valuer shall be appointed by the AIFM, or by the AIF should the latter be self-managed. In fact, the valuation function shall be performed by:
    • The EV – should be independent from the AIF/AIFM
    • The AIFM – only if the portfolio management & remuneration policy are independent from the valuation task
    • The Custodian cannot be the external valuer of the AIF unless proper delegation is in place

For more information about setting up an Alternative Investor Fund, kindly contact us for a non-committal professional advice or complete our Fund Establishment Worksheet which provide a summary of the administration services that we offer.