Malta has ambitious plans for development of hedge fund sector

Malta wants to grow its hedge fund sector

Governments may come and go but one thing remains constant in Malta: commitment to the growth of financial services. Following a general election in March, the Labour Party won a majority of seats, defeating the Nationalist Party that had been in power for 15 years. But the one subject that unites all political parties in Malta is a commitment to broadening the financial services sector, including the development of the alternatives industry.

“Malta is constantly on the lookout for new opportunities to increase the breadth and depth of its financial services infrastructure,” according to finance minister Edward Scicluna, speaking during an ESAFON international conference.

The new government named Christian Cardona as minister for the economy, investment and small business. The portfolio, which covers a wide range of areas, includes financial services as well as investment promotion and small business. 

Cardona, a lawyer by training and before his appointment a senior partner at CV Advocates, confirms the Labour Party has always been highly supportive of financial services.

“Education remains at the forefront of our thrust to support this fast-growing industry,” he says. “We are known to be nimble because of our size as a country but we need to further strengthen education, and government is currently seeking as well to simplify and reduce bureaucracy in order to ensure a high level of responsiveness as a jurisdiction.” One aspect of this initiative is helping bring women back into the workplace, something the minister believes will help financial services in Malta.

Education and a growing pool of qualified individuals suitable for the sector is important in the European Union’s smallest member state. Being an island, Malta is physically limited in its ability to grow the workforce but has declared it welcomes qualified individuals who are able to enhance financial services and in particular the funds industry.

“Rather than having a restrictive approach to financial services, it is more a question of having the right jobs ready for the future of the industry. At the moment we are working on what is called the employability index, which will help government ensure that in the next three, four, five years we will have a clear forecast of the skills needed in this particular industry,” Cardona explains.

This will give the government a better idea of the skills and education needed to provide the sector with suitable applicants. “We have to make sure that locally we have the right professionals, the right talented people to work in this industry. If not, we will have to consider a European platform which would provide us with the necessary skills,” he continues.

General measures, such as the appointment of a commissioner for the simplification of administration, while aimed at the wider industry will also benefit financial services. Specific legal and regulatory initiatives aimed at hedge funds and alternatives are driven by the Malta Financial Services Authority (MFSA). FinanceMalta, which focuses on the promotion of the jurisdiction, also has a role to play, according to the minister.

“There are a number of discussions underway to make the sector more competitive. The introduction of the alternative investment fund managers directive [AIFMD] by the MFSA fits well with the current professional investment fund framework,” says Cardona.

In addition Cardona confirms the government works closely with FinanceMalta “in order to have and brand the right promotional exercises for our jurisdiction. We work very closely with both the MFSA and FinanceMalta.”

From a regulatory aspect Malta is working to simplify administrative procedures. “We can make sure that we are more expedient, that the costs are competitive. We can also have a very personal approach. This is something which is happening, not only in the financial services sector, but in other industries,” states Cardona.

He believes there are “many advantages which make our size competitive and more attractive”.

One area where Malta intends to push its advantages with the alternatives sector is its attractiveness as a jurisdiction with the introduction of AIFMD.

“AIFMD, without a shred of doubt, opens up new possibilities for raising capital in Europe by way of the ability to passport funds managed by alternative investment fund managers across borders in Europe,” he adds.

Malta’s fund industry has experienced significant growth over the last few years. This was not restricted just to the setting-up of funds in Malta but also an influx of asset management companies servicing both funds in Malta and abroad. In September the MFSA launched a consultation proposal to introduce a new category of entities that can provide depository services, something mandated under AIFMD. 

“The proposals are for permanent fund administrators or category two licence holders to provide depository services,” he says. “The same entities will also be eligible to provide depository services to closed and private equity or real estate alternative investment funds, those without redemption rights during the first five years and which do not earn any interest in assets that must be held in custody.” 

While Malta may be confident of its future in financial services, Cardona notes that “there are a number of challenges facing not only the industry in Malta but that in Europe in general”. 

A slew of regulations out of Brussels, including Emir, Mifid and Solvency II, “will bring their challenges. On the other hand one must not solely be focused on the challenges but the thrust should also be to identify opportunities that these new regulations will invariably present and adapt our position to exploit these opportunities as they arise,” notes Cardona.

“The opportunities will come by having a wider spectrum of portfolios so when you are marketing the industry abroad, the offer you can give to entice new investors will offer more areas of opportunity,” he says. “The challenges are there for us to face up to and to rise to the opportunity, to manage to maximise the potential of our jurisdiction in this context.”

While Cardona believes Malta has sufficient infrastructure to support growth in the financial services sector, the raft of EU regulations are a concern. “We are known to be nimble because of our size but we need to keep on strengthening the structures that provide the services. We need to keep abreast with new regulations, with new directives and make sure that we have the proper structures in order to get the work done – and done efficiently.”

He confirms the hedge fund sector is equally important in the government’s growth plans, along with insurance, credit and financial institutions. “We have embarked on a programme to strengthen various economic sectors to ensure that there is no reliance on any one sector. We want to diversify our economy and not be completely dependent on one niche or a couple of sectors. This is important: that we give equal importance to different sectors.”

Malta’s size is another challenge. While Malta’s human resources are a strength, according to Cardona, they are equally a challenge “as we need to ensure an adequate supply of suitably qualified human resources requirements to service the needs of the industry. That is one of the main challenges. Being competitive is one thing; ensuring that competitiveness is sustained is clearly another. The government will strive to ensure that Malta’s competitive sectors are sustained and strengthened where possible.”

Size, however, has its advantages. Not only can Malta react quickly to new rules coming out of Brussels, it is able to put a personal touch to new entrants to the market, while access to the MFSA, the government and services providers is quick and easy. The idea, says the minister, is to make Malta a hub that provides excellent services in a range of financial services.

Despite Malta’s relatively recent entry into international arenas compared with other established jurisdictions, it continues to hold its own and is widely acknowledged to ‘punch above its weight’ in European as well as wider international discussions. “Based on the growth so far, I am quite optimistic that the industry will continue to flourish, and flourish in the right direction and in a sustainable way,” says Cardona.

For example, Malta is fine-tuning its legislative framework in order to make the country more competitive and to keep in line with EU legislation with the help of the MFSA and FinanceMalta. 

“Based on the growth achieved so far, I think the future of the industry is a bright one. There is traction in the setting up of fund managers and fund administrators. Malta’s attractiveness is not just limited to European business but because of Malta’s geography it is also attractive for non-EU-based fund managers, particularly the south and south-east of the Mediterranean, which may use Malta as a platform to passport services to the EU,” says Cardona. 

From a European perspective, Cardona would like to see more of a push in the EU as a whole to make the region attractive for financial services. “We know who our competitors are and so our question is whether we need to compete within just the European region or we need to make Europe more competitive vis-à-vis other economic regions. I think that is one of the primary targets that the EU has to work on in the coming months and the coming years, that of being more competitive than other jurisdictions.”

Malta not only has a strong voice in the EU, it is active in other financial services forums and believes it will be better placed in the coming year to contribute in a more active way to the development of the European fund industry.

While Malta is keen to attract more business, it is also mindful of its reputation. It jealously guards this and believes this ensures it is a reputable jurisdiction. “In a European context we need to keep our reputation. We have built this sector on high reputation and we need to work in this direction even in this sector,” adds Cardona. 

He is mindful that a pool of qualified people may be the biggest break for Malta’s development of financial services. “In the coming months we will embark on a national campaign which would lead steadily to having a deeper appreciation of small businesses, of the facilities that could help them grow and maximise their potential,” says Cardona, adding, “I am also including the need for alternative credit facilities which would help small businesses grow more soundly and on a stronger footing.”

Since hedge funds are small businesses, this initiative along with other government programmes should help encourage more managers and management companies to set up on the island state.