A Professional Investor Fund ("PIF") may be set up as an open or closed-ended investment company – in the form of an investment company with variable share capital ("SICAV") or an investment company with fixed share capital ("INVCO"), a limited partnership or a unit trust. A PIF may also be set up as a Contractual Fund or an incorporated cell company ("ICC").

The PIF regime comprises three categories:

• PIFs promoted to Experienced Investors (or Experienced Investor Funds)
• PIFs promoted to Qualifying Investors (or Qualifying Investor Funds)
• PIFs promoted to Extraordinary Investors (or Extraordinary Investor Funds)

Any scheme wherever set up, including a scheme set up as a PIF, ought to be in possession of a Malta license to operate in or from Malta. Moreover, a scheme including a PIF, set up in Malta to operate in another country should likewise be in possession of a financial services license.

Malta financial services legislation provides that the preliminary steps in establishing a scheme including a PIF, can be taken prior to the attainment of a licence. Nevertheless, the scheme may not deal with investors before it is licensed.

The MFSA will grant a licence if it is satisfied that the PIF will comply in all respects with the provisions of the law, the relevant regulations and the respective rules and that its directors and officers, or in the case of a unit trust/common contractual fund or limited partnership, its trustee(s) or general partner(s) respectively, are fit and proper persons to carry out the functions required of them in connection with the PIF.

In assessing an application for authorisation, the Malta Financial Services Authority ("MFSA") will consider the nature of investors to whom it will be marketed. It will also look into the experience and track record of all parties who will be involved in the PIF. Such persons should be of good standing and of a certain competence. When assessing whether to authorise or otherwise an applicant, the MFSA applies the standards relating to the 'fit and proper' status of the applicant and its service providers. This test is one which an applicant and a licence holder must satisfy on a continuing basis. In general terms there are three criteria which must be met to satisfy the "fit and proper" test namely integrity, competence, and solvency.

Foreign based schemes that are just listed on the Malta Stock Exchange, without having their units marketed/promoted in Malta, whether by the scheme directly or through investment service licence holders, are not deemed to be carrying on an activity in Malta. Therefore, these schemes are not required to hold a collective investment scheme licence in terms of the Malta financial services legislation. The term carry on an activity, includes marketing, advertising, and other promoting activities.

PIFs Promoted to Experienced Investors

"Experienced Investors' are persons having the expertise, experience and knowledge to be in a position to make their own investment decisions and understand the risks involved.

An investor must state the basis on which he/she satisfies this definition, either by confirming that he/she is

• a person who has relevant work experience having at least worked in the financial sector for one year in a professional position or a person who has been active in these type of investments; or
• a person who has reasonable experience in the acquisition and/or disposal of funds of a similar nature or risk profile, or property of the same kind as the property, or a substantial part of the property, to which the PIF in question is related; or
• a person who has carried out investment transactions in significant size at a certain frequency; or by giving any other appropriate justification.

Persons who qualify as "Professional Clients" in terms of the EU Markets in Financial Instruments Directive ("MiFID"), automatically qualify as "Experienced Investors."

The minimum investment threshold is €10,000 or $10,000 or equivalent in another currency. The total amount invested may not fall below this threshold unless this is the result of a fall in the net asset value of the PIF. Moreover, the minimum investment threshold applies to each individual experienced Investor. In the case of joint holders, the minimum investment limit remains €10,000 or $10,000 or equivalent in another currency. In the case of an umbrella fund comprising of sub-funds each of which is set up as a PIF, the €10,000 threshold may be applicable on a per scheme basis rather than on a per sub-fund basis. An Experienced Investor may hold less than €10,000 in a sub-fund provided that his total holding in such scheme is at least €10,000.

The Manager/Sales Agent or any third-party selling units of the Experienced Investor Fund is bound to take reasonable steps to ensure that the investor has sufficient knowledge and understanding of the risks involved in investing in a PIF.

Whilst borrowing on a temporary basis for liquidity purposes is permitted and not restricted, borrowing for investment purposes or leverage via the use of derivatives is restricted to 100% of the net asset value ("NAV").

PIFs Promoted to Qualifying Investors

An investor may only be classified as a “Qualifying Investor” if he/she attests that he/she meets one or more of the following criteria:

• a body corporate which has net assets in excess of €750,000 or which is part of a group which has net assets in excess of €750,000;
• an unincorporated body of persons or association which has net assets in excess of €750,000;
• a trust where the net value of the trust’s assets is in excess of €750,000;
• a person who has reasonable experience in the acquisition and/or disposal of :-
  • funds of a similar nature or risk profile;
  • property of the same kind as the property, or a substantial part of the property, to which the PIF in question relates;
• an individual whose net worth or joint net worth with that person’s spouse, exceeds €750,000;
• senior employees or directors of service providers to the PIF;
• relations or close friends of the promoters limited to a total of 10 persons per PIF;
• entities with (or which are part of a group with) €3.75 million or more under discretionary management, investing on its own account;
• the investor qualifies as a PIF promoted to Qualifying or Extraordinary Investors;
• An entity wholly owned by persons or entities satisfying any of the criteria listed above which is used as an investment vehicle by such persons or entities.

In the case of joint holders, all holders should individually satisfy the definition attributable to Qualifying Investor.

The minimum initial investment amounts to €75,000 or $75,000 or equivalent in another currency. The total amount invested may not fall below this threshold unless this is the result of a fall in the NAV. Provided that the minimum threshold is satisfied, additional investments – of any size – may be made. It is fundamental to note that the minimum investment threshold applies to each individual Qualifying Investor. Moreover, in the case of joint holders, the minimum investment limit remains €75,000 or $ 75,000 or equivalent in another currency.

In the case of an umbrella fund comprising of sub-funds each of which is set up as a PIF, the €75,000 threshold may be applicable on a per scheme basis rather than on a per sub-fund basis. Thus, eYectively a Qualifying Investor may hold less than €75,000 in a sub-fund provided that his total holding in the scheme amounts to at least €75,000 or $ 75,000 or equivalent in another currency.

Prior to accepting any investment, the PIF must be in receipt of a completed 'Qualifying Investor Declaration Form' in which the investor confirms that he/she has read and understood the mandatory risk warnings, while outlining why he/she constitutes a Qualifying Investor. In the case where the Qualifying Investor is a company or partnership, such declaration is required from the Directors/Partners, whilst in the case of a Trust, from the Trustee.

PIFs promoted to Qualifying Investors are not subject to any restrictions on their investment or borrowing powers (including leverage) other than those which may be specified in their OYering Document.

PIFs Promoted to Extraordinary Investors

An “Extraordinary Investor” is required to meet one or more of the following criteria:

• a body corporate which has net assets in excess of €7.5 million or which is part of a group which has net assets in excess of €7.5 million;
• an unincorporated body of persons or association which has net assets in excess of €7.5 million;
• a trust where the net value of the trust's assets is in excess of €7.5 million;
• an individual whose net worth or joint net worth with that person's spouse, exceeds €7.5 million;
• a senior employee or Director of service providers to the PIF;
• the investor qualifies as a PIF promoted to Extraordinary Investors;
• An entity wholly owned by persons or entities satisfying any of the criteria listed above which is used as an investment vehicle by such persons or entities.

In the case of joint holders, all holders should individually satisfy the definition of Extraordinary Investor.

The minimum initial investment is €750,000 or $750,000 or equivalent in another currency. The total amount invested may not fall below this threshold unless this is the result of a fall in the NAV of the Fund. Provided that the minimum threshold is satisfied, additional investments of any size, may be made. The minimum investment threshold applies to each individual Extraordinary Investor. In the case of joint holders, the minimum investment limit remains €750,000 or $750,000 or equivalent in another currency.

In the case of an umbrella fund comprising of sub-funds each of which is set up as a PIF, the €750,000 threshold may be applicable on a per scheme basis rather than on a per sub-fund basis. Thus eYectively, an Extraordinary Investor may hold less than €750,000 in a sub fund provided that his total holding in the scheme is at lease €750,000.

Prior to accepting any investment, the PIF should be in receipt of the pertinent completed Declaration Form in which the investor undertakes that he/she has read and understood the mandatory risk warnings and describes why he/she is an Extraordinary Investor. In the case where the Extraordinary Investor is a company, such declaration is required from the director(s)/general partner(s), whilst in the case of a trust, from the trustee.

Importantly, PIFs promoted to Extraordinary Investors are not subject to any restrictions on their investment or borrowing powers other than those which may be specified in their OYering Document/Marketing Document.

The Offering Document

A PIF targeting Experienced or Qualifying is required to draw up an Offering document. The Offering Document should be provided to prospective investors free of charge. A PIF targeting Extraordinary Investors may either draw up an offering document or else draw up a Marketing Document.

The Marketing Document should at least include the following information:

1. a list of Service Providers including the Directors, General Partner(s) or Trustee, and their respective contact details;
2. a definition of Extraordinary Investor;
3. a risk warnings section describing in brief at least the principal risks associated with investing in the PIF;
4. the investment objectives, policies and restrictions of the PIF or where applicable its sub-funds;
5. details of the fee structure;
6. details of the classes / units on offer whether these constitute a distinct sub-fund or not;
7. overview of the safekeeping arrangements in the case where a custodian/prime broker is not appointed;
8. a Statement – where the PIF has issued "Voting Shares" to the promoters and "non-Voting Shares" to prospective Investors – identifying the holders of the "Voting Shares" of the PIF. This section should also provide that the identity of the ultimate beneficial owners of the holders of "Voting Shares" will be disclosed upon request;
9. the Extraordinary Investor Declaration Form and the Subscription Form;
10. the following text: "[name of the Fund] is licensed by the Malta Financial Services Authority ("MFSA") as a Professional Investor Fund which is available to investors qualifying as 'Extraordinary Investors'. This entails the minimum level of supervision for a Fund regulated in Malta. Professional Investor Funds are Non–Retail schemes. Therefore, the protection normally arising as a result of the imposition of the MFSA's investment and borrowing restrictions and other requirements for retail schemes do not apply. Investors in PIFs are not protected by any statutory compensation arrangements in the event of the fund's failure. The MFSA has made no assessment or value judgment on the soundness of the fund or for the accuracy or completeness of statements made or opinions expressed with regard to it."

The Marketing Document should also include as an Annex, either the most recent version of the Constitutional Document of the PIF or a summary thereof. In the latter case, the Marketing Document should provide that a copy of the PIF's Constitutional Document will be provided to prospective investors upon request. The Marketing Document or where applicable the Offering Document, should be provided to prospective investors free of charge.

Listing on a Regulated Market

The term ‘regulated market’ refers to an investment exchange which has been granted a recognition order by the MFSA as competent authority. Currently, the only regulated market in Malta is the Malta Stock Exchange. A PIF (provided that it is not a private company) may apply to such regulated market for a listing.

Promethean Advisory Limited, through its expertise and good standing with the MFSA can duly assist in all of the above stages, including the preparation of the offering document and other related documentation.