On 2nd April 2014, the MFSA published a Rulebook on the “Standard Licence Conditions applicable to Collective Investment Schemes authorised to invest through Loans”.
A loan fund shall be established as a Professional Investor Fund if the fund manager is a de minimis AIFM or as an Alternative Investment Fund if the fund manager is an AIFM licenced. The fund shall be a SICAV with closed ended features. It shall be able to invest exclusively through loans and only to unlisted companies (including SMEs), with the exclusion of financial institutions.
The MFSA Rules cover direct origination of loans by the Scheme, or the acquisition by the Scheme of a portfolio of loans, or a direct interest in loans which gives rise to a direct legal relationship between the Scheme as a lender and the borrower.
Loan funds shall only target professional investors and those investors who specifically requested to be treated as professional clients and commit to invest at least €100,000.
The fund shall appoint:
- A fund manager. He shall have sufficient financial resources and available liquidity in order to carry out the business, as well as the necessary organization, systems, experience and expertise as required by the Authority. He shall also have proven experience in granting loans.
- A single custodian. He shall hold an Investment Services License of:
– Category 4a: for any category of collective investment fund), or
– Category 4b: only when the Scheme complies with the following three cumulative conditions: it has no redemption rights exercisable during the period of 5 years from the date of the initial investment; in accordance with its core investment policy, it generally does not invest in assets that must be held in custody; and it generally invests in issuers or non-listed companies in order to potentially acquire control over such companies).
- An auditor
- A compliance officer
- A money laundering reporting officer
Arrangements shall be made with regards to the valuation function.
The fund manager shall comply with the investment objectives, policies and restrictions of the Scheme as indicated in the Offering Document, in particular concerning the eligible investments, the risk profile of the fund and the other terms of the offer. The use of leverage and the reuse of collateral by the Scheme are not permitted.
The fund manager shall establish and implement a credit risk strategy and related policies proportional to the scope and sophistication of the activities of the Scheme. Such strategy shall be submitted by the fund manager to the fund’s governing body for approval.
Liquidity management policy
The Rulebook strengthens the AIFMD requirements concerning the liquidity management. The fund manager shall employ an appropriate liquidity management system, adopt procedures enabling the monitoring of liquidity risk and ensure that the liquidity profile of the investments complies with its underlying obligations.
Even though the fund must be structured as a closed-ended Scheme, should the fund have excessive liquidity the fund manager may, on a yearly basis, opt to redeem and cancel any shares in accordance with the terms of the offer.
Disclosure to investors
The MFSA’s Rules require detailed disclosure obligations to investors, modelled on the ones set out in the AIMFD. Moreover, an annual report shall be provided to investors by the fund manager.
The MFSA’s Rulebook on the “Standard Licence Conditions applicable to Collective Investment Schemes authorised to invest through Loans” can be found at the following link: http://www.mfsa.com.mt/pages/viewcontent.aspx?id=512.
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