London fund managers’ Malta move makes FT front page

Malta’s success in attracting some of London’s largest hedge fund managers to move to the island on account of cost-competitiveness and less intrusive regulation made the front page of last Friday’s edition of the Financial Times.

A teaser headed ‘Maltese crossing’ on the edition’s front page led readers to an article by Sam Jones in London on the cover of the Companies and Markets section.

Although the text contained little industry practitioners did not already know by way of technicality, Malta Funds Industry Association chairman Kenneth Farrugia told The Sunday Times such high visibility coverage was confirmation of two important facts.

“It is attestation that the momentum the internationalisation of the local funds industry has gathered over the past five years has been sustained, and it is confirmation that there is a cluster taking shape in Malta’s industry. That is very positive,” Mr Farrugia said.

The article illustrated how the growth of the Malta office of Clive Capital, the world’s largest commodity hedge fund manager, had been “exclusively at the expense of London”.

Along with London-based Clive, which manages an estimated $5 billion, the article named $2.3 billion Duet Asset Management, $1 billion Finisterre Capital, and Belay Partners as all having recently established a presence in Malta.

It said the parent of Blue Gold Capital, a global energy hedge fund leader, had domiciled in Malta in 2008 and was now considering establishing a team on the island.

Jones wrote that Malta was competing well with London rivals such as Geneva in offering operational flexibility and a less prohibitive tax regime than the City. In the past few months, London had upped some tax rates to 50 per cent, significantly denting managers’ take-home packages.

Mr Farrugia, who is also chairman of Finance Malta, the public-private initiative tasked with promoting Malta as an international financial centre, stressed it was clear it was not just the fund products, like Undertakings for the Collective Investment of Transferrable Secutities, or hedge funds, which were being established here, but also the internationally-owned fund administrators.

Now numbering 16, the fund administrator community had completely outstripped the indigenous players, traditionally led by subsidiary operations of the larger local banks.

He added that managers which had moved to Malta were now increasingly likely to bring funds based elsewhere to the island.

Meanwhile, the number of funds and fund managers which had made Malta their domicile of choice was growing consistently.

Up to September last year, 434 collective investment schemes were registered in Malta, 49 new investment services licences were granted and 73 Category 2 licensed investment management companies were established. The figures include re-domiciliation from the Cayman, Channel and the British Virgin Islands.

The funds industry’s direct and indirect contribution to GDP stood between 12 and 13 per cent, up from three per cent in 1995, and foreign direct investment growth in 2010 was largely driven by financial intermediation.

The FT article’s heading – ‘Hedge funds head for Malta to escape costs and regulation’ – may have grated against some practitioners’ teeth. On principle, Finance Malta itself never promotes the domicile on the strength of the tax framework.

Mr Farrugia said the organisation maintained the tax regime was subject to change and was more comfortable marketing Malta on its other strengths: a highly experienced, professional talent pool, a sound legal and regulatory framework, a ‘can do’ and reasonable time to market culture.

Malta’s operational infrastructure also included the Big 4 professional services firms and a dependable network of legal and financial expertise.

These attributes were among those cited in Ernst and Young’s Malta Attractiveness Survey as having a bearing on organisations’ final decision to relocate.

Malta, he pointed out, had gained a reputation for its cost-competitiveness several years ago and fund professionals soon learnt Malta’s complete package included attractive and accessible residential options and a high standard lifestyle, besides professional resources.

Mr Farrugia, however, stressed that Malta’s regulatory regime was at par with any other in Europe, particularly as the industry was mainly governed by EU directives placing the same regulatory burden on all jurisdictions and there was no regulatory arbitrage. The Malta Financial Services Authority is also a member of the European Securities Markets Authority.

“There is also a great deal of sensitivity in the industry at the moment about belonging to a domicile that is very well regulated,” Mr Farrugia said.

“While the focus was previously on due diligence at fund level or fund manager level, the domicile itself is now becoming increasingly important. There are far more options than there were 20 years ago, and those seeking to expand or optimise operations will examine the potential of alternative jurisdictions.

“Operators are particularly keen on a presence in jurisdictions that are in the relatively early stages of growth like Malta. That the bigger names are coming here is very beneficial.”

Finance Malta has directed significant marketing efforts at the UK and has held events in the City, sponsored trade publications and generally worked to maintain a presence in the market.

Last year, the organisation decided to begin to venture to other jurisdictions to expand its target client base.

A delegation of professionals led by Finance Malta returned from New York a few days ago after a series of meetings with practitioners and operators which Mr Farrugia described as encouraging. An event organised in collaboration with Hedge Fund Week was attended by more than 100 managers.

Mr Farrugia added that Malta left a good impression at a smaller event attended by “high quality” firms where the island was represented on a panel alongside heavyweight jurisdictions Luxembourg and Ireland.

Finance Malta tended to shadow Malta’s international and business policy and often joined trade delegations or organised follow-up missions to regions visited by the President and the prime minister. Events have been held in the Gulf, Hong Kong and China, and the US.

Mr Farrugia believed Malta could be an attractive proposition for US hedge fund managers seeking to tap the European market, even as an alternative option to Ireland’s ‘natural gateway’ to the continent.

Europe, Mr Farrugia stressed, remained a core market where Malta would continue to tap new business opportunities, not only in the funds industry, but also in the insurance and trust sectors where Malta had successfully nurtured healthy growth.

Finance Malta is to participate in Euro Hedge, the well-attended Paris event, and at others in Germany and the UK later this year.

A follow-up trip to New York is on the cards, particularly after the encouraging feedback from the recent visit.

“There will be more of the same,” Mr Farrugia said. “It is important to ensure there are repeated initiatives in the same market so that we are constantly present in those we target.”