Maltese fund administration sector expands as Citco opens for business in 2013

Special report Malta 2012/2013: Dawn of a new era


“Malta will be on the rise for the next few years. I don’t see a reason why it should stop, irrespective of the financial crisis, because [the crisis] is giving a reason for other players to look for alternatives,” declares Kevin Caruana, managing director at Custom House Global Fund Services, part of the TMF group.

His thoughts echo those of others in the fund administration business in the jurisdiction. Malta continues to be an attractive place for fund administration. From only a handful of companies a few years ago, the island now has nearly 30 fund administrators. With Citco expected to set up shop, many think the industry overall could get a fillip as larger funds start considering Malta as an alternative to the more expensive and relatively crowded markets of Ireland and Luxembourg.

For Custom House, Malta has been on the radar for some time. In September 2008, Custom House merged with the fund services business of what is now the TMF Group and reorganised under Custom House Global Fund Services, the Maltese-based holding company for the group. Malta was the only jurisdiction where both entities had fund administration operations. TMF has around 10 people still operating separately from Custom House in Malta, but that is expected to change in 2013 when the two are completely merged.

In terms of new business coming through the sales team, which is centred in Dublin, Malta is one of the fastest-growing locations for the group, according to Caruana. Its Malta office has grown from around eight people in December 2009 to 30 people. “That is because the group realises Malta not only offers qualified personnel but is actually a centralised hub that the market players can relate to,” says Caruana.

“Malta is now very much more in the international geography and it is recognised as an institution. We have fund managers, clients of ours who have actually opened shop in Malta, have moved their fund administration to the Malta office. We believe that Malta and [the fund administration] industry is going to be a key operational office for Custom House.”

Custom House in Malta services one of the largest fund structures domiciled on the island, the Royal Bank of Canada funds, which have assets under management (AUM) of more than $2 billion. But this is unusual for the jurisdiction. Most business for administrators and others remains well below the $100 million mark with many even below $50 million.

“Ironically the financial crisis in a way gave Malta a push,” says Caruana. “[The crisis] forced people to look for a new option. Investors wanted a new jurisdiction to look for onshore investment rather than maybe typical offshore businesses that we were accustomed to before. As long as Malta keeps its standards high and has a business-minded approach I think we can still increase [our market share]”.

Struggling with the question
Caruana’s comments reflect a question Malta’s funds sector is struggling with. On the one hand, Malta is seen as a niche market for small asset structures or strategies. However, Caruana believes Malta should not be selling itself short. Irrespective of where the fund is domiciled, he says, it is “easy to service” it in Malta. Pluses for Malta include the fact it is an EU onshore jurisdiction with English as an official language.

“As the demand increases and resources start to get stretched, it could lead to delays and it could lead to increases in general costs, which might eat up our advantage,” warns Caruana. “On the positive side I think government and the opposing parties are in agreement. They are doing as much as they can to make [Malta] attractive for clients and service providers. I like to think we will always be in a position to supply demand.”

With the expected arrival of Citco in 2013, Caruana admits competition will be tougher. “Citco coming in means more business to the island and increasing the profile of the industry,” he says, adding, “The biggest competition is going to be regarding staff rather than business.”

Another fund administrator that has been feeling the pinch of recruiting staff is Alter Domus, founded in Luxembourg with origins in accountants Price­waterhouseCoopers. The Malta operation began in September 2010 as a greenfield operation. “We basically had very few clients and they were on the corporate side,” says Chris Casapinta, managing director in Malta.

The company received its fund administration licence in 2011 and began servicing mainly Cayman Islands funds. ”In the meantime we started building a name here locally.” Now the office employs 23 people, “which is decent by Maltese standards”, says Casapinta.

Although the operation in Malta began offering corporate, accounting and directorship services, fund administration has quickly overtaken. “I expect in 2013 our revenue will be 70% fund administration and 30% corporate services. On the corporate side in Malta, it is very competitive, prices are going down,” he says, adding, “It is the same on fund administration at the moment but less competitive. On the corporate side it is really competitive and we have been seeing a lot of new entrants into the market.”

Alter Domus administers mainly Cayman funds at the moment. It is also picking up business from funds that prefer the lower cost of Maltese administrators compared with Luxembourg. 

Around 70% of the funds, by AUM, administered in Malta are based in Cayman, around 5% from the British Virgin Islands and a quarter domiciled in Malta. However, in terms of the actual number of funds administered, Malta accounts for almost half, mainly because most of the funds have very small AUM.

Telling timezones
A lot of the business Casapinta picks up from Cayman is European-based managers looking for a fund administrator closer to home and in the same timezone. These funds have been established for some time. Many are based in Switzerland, he says.

“Being in the same timezone is a big plus,” he adds. While Cayman should remain a domicile of choice, he still expects to see a movement of fund administration away from the Caribbean and into Europe, particularly if both manager and investors are mainly in Europe. “On the Malta side, I also see continued growth, albeit at a slower pace,” he says.

“Today we have got a number of clients with [links to local law firms and we are] expecting repeat referral. Now we have worked with, for example, PwC, with Deloitte, too. Once it starts, the more administration you are able to offer, the more people start referring to you. The good thing about Malta is that it is small.” This, he believes, helps businesses grow, as word-of-mouth recommendations are quick to be passed around the financial services sector.

Another relatively recent newcomer to Malta is SGGG Fexserv Fund Services (Malta). “We started our fund administration at the end of 2008, beginning of 2009 which of course was not the right timing,” admits Lawrence Buttigieg, general manager. Buttigieg sees opportunities in the future as Malta continues to improve its infrastructure in addition to the new business he expects to come from the introduction of the EU’s alternative investment fund managers (AIFM) directive in July 2013. “With the AIFM directive coming through, a lot of managers have started looking at how that will influence the business and solutions to that. In most cases the solution will be to have a Malta jurisdiction, a structure and a licence to operate from within the EU, which when someone is looking for new options, is coming across Malta”

He believes SGGG Fexserv is living in “interesting times” as some managers are still hesitating over the AIFM directive until more details on the implementation measures and how that will impact fund businesses is known.

“At the end of the day managers need to adapt themselves and probably the best jurisdiction to operate from, particularly for smaller managers where costs of running an operation is a concern, is Malta. I think the more requirements to be satisfied, the more the cost will be a factor. And that is why Malta becomes more important,” he says, adding, “I think overall Malta has now become very prominent on the radar.”

Like others, Buttigieg also points to the English-speaking population and an approachable regulator as advantages for the jurisdiction. “I think you get a more boutique service from [Malta] as opposed to the bigger players that are in Dublin and Luxembourg,” he says. “In terms of the expertise, several players have been operating here for a number of years. So the expertise is either in-house locally or available from [operations outside Malta].”

Another fund administrator with multiple global locations and a sound presence in Malta is Apex Fund Services. “It’s been a tough year. We have seen smaller funds drifting off and not surviving. We’re having to replace those funds and that has been quite difficult. We still managed to keep business and grow another 20%,” says managing director Anthony O’Driscoll.

He says Apex has also seen a change in where clients are domiciling in 2012. “We have seen a lot more going back to the traditional offshore [jurisdictions] and that’s primarily where we have been doing our business – from Cayman and Bermuda funds administered from here,” he continues. “Malta has slowed down. I think it’s caught on the edge of the storm – of the regulation coming with the AIFM directive. A lot of people are not sure of the impact it’s going to have on their business.”

He also points to the Swiss market where many fund managers are also looking outside the non-EU state for a base inside the union. Many have also been spooked by new regulations that come into effect in February 2013 that will bring hedge funds under control of the Swiss regulator. “We shall see [in 2013] whether we return to normality for our business”.

Additional revenue in 2012, says O’Driscoll, has come purely from new launches. However, he admits most of these launches were under the $50 million AUM mark. “We think we will see a lot more business from other jurisdictions looking to increase their tax take,” he says, referring to the need of many governments to raise revenue.

“Even though very few funds actually go through the process of re­domiciliation, if there was somebody thinking of changing jurisdiction, they would want to look at [Malta]. At least we are on the radar when they actually decide,” he says.

Despite more competition, particularly around fees, O’Driscoll believes Apex continues to grow its business “because of the name and reputation we have built with the clients we have here and the service level” as well as a global presence and high technology standards.

Looking to the arrival of Citco, O’Driscoll is sanguine. “It depends on how you want the industry to grow. Having a large player here just to use the jurisdiction [and put] all the jobs back to Ireland or Luxembourg is not going to be adding any value to the jurisdiction,” he cautions. “We need to be sure that what we are bringing in is going to build business in Malta, produce the jobs in Malta and grow the industry. The ultimate goal of having the funds industry in Malta is to make sure we get job creation. We need to fit the needs of Malta.”

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