08 October 2014

Hedgeweek: Regulation drives wider range of reporting solutions

With the AIFMD, together with the introduction of EMIR and Foreign Account Tax Compliance Act (FATCA), fund administrators are facing big challenges in getting up to speed on the directives.

AIFMD and EMIR in Europe represent opportunities to administrators whose level of preparedness is such that, through the identification and implementation of multiple reporting options, places themselves at the forefront to increase their revenue streams. With the right technology solutions, reports can be generated and validated to meet these European regulatory requirements. Complex reporting requirements such as the ones associated with AIFMD, impose the need to identify and apply innovative and new reporting tools.

Joseph Camilleri, Head of Business Development at Valletta Fund Services, the fund administration arm of the Bank of Valletta, comments that Malta Financial Services Authority (“MFSA”), wisely opted to keep its Professional Investor Funds (PIFs) regime alongside the newly introduced AIF rule book that adheres to the AIFMD provisions. “This provides small to mid-sized hedge fund managers that are classified as “de-minimis” the opportunity to opt out of the onerous obligations as set by the Directive, and pursue their distribution model based on private placement. This ensures that Malta’s strong position as an ideal domicile for de-minimis fund structures is sustained,” says Camilleri. Having two rule books for alternative investment funds puts Malta in a highly advantageous position, enabling it to market itself to a wider fund promoter base. Coupled to this, Camilleri believes that Malta holds a compelling business case for the setting up of AIFMs to operate from Malta.

“We have more than 120 investment services licences issued by MFSA, of which over 90 are fund management companies with an operational base in Malta. There is a mix between de-minimis managers and others well beyond the threshold (set at EUR100m), which are converting to AIFMs. Many local fund managers are subsidiaries of larger FCA-licensed UK management companies. A number of these have opted to convert their Malta operations into AIFMs, adopting a business model whereby the risk management activities are conducted locally in Malta, whilst the day-to-day investment management activities are outsourced to the UK-based managers that do not hold an AIFM licence. “This is a business model that we envisage will grow steadily, strengthening Malta’s positioning as a domicile of choice for many operators in the funds sector” comments Camilleri.

It is a challenge for fund managers to ensure that the TER of their funds remains contained and costs do not spiral as they are ultimately borne by the investors. ‘’This is ironic’’, says Camilleri, considering that the Directive’s core objective “was to safeguard the interests of the investors themselves! Obviously, this would lead to lower performance results of the funds. In this respect VFS, early on, ensured that all the reporting requirements, especially regarding Annex IV, were fully understood. Our systems were updated and set up where necessary, in order to facilitate the smooth running and integrity of such reports. The majority of the information required under Annex IV is already held by administrators in their normal course of business. Therefore VFS is best placed to provide this reporting services to its hedge fund clients, allowing them to focus on core competencies; that is, investment management,” says Camilleri.

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