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Malta MFSA Grants Licence to First Loan Fund

Malta MFSA Grants Licence to First Loan Fund

The Malta Financial Services Authority has granted a licence to the first Maltese-registered loan fund. Loan funds are a recently novel addition, to the Maltese landscape of licensed collective investment schemes. Governed by a bespoke set of rules, loan funds address one of the most frequently asked questions by fund managers – the possibility for funds to grant loans (an activity that was, until the enactment of the rules, the prerogative of banking and credit institutions.

Loan funds, must have at least 70% of their assets, constituted by direct origination of loans by the loan fund or the acquisition of a portfolio of loans or a direct interest in loans. In order to preserve the liquidity of the fund, the remaining 30% must be invested in liquid assets, and the loan funds are precluded from adopting leverage of short selling methods – as a safeguard for diversification, and the curtailing of exposure to the fund investors.

Loan funds may only issue loans to unlisted companies and small and medial sized companies (SMEs). Investment within the fund is limited to professional investors (as defined within MiFID) and the minimum investment, per investor, is set at EUR 100,000.

A loan fund may take various forms as a collective investment scheme, albeit a public limited company with variable share capital (SICAV) tends to be the preferred form. The Loan fund may appoint a custodian, an auditor, a compliance officer and a money laundering reporting officer. The loan fund may be externally managed by a licensed fund manager (duly authorized in terms of the Alternative Fund Managers Directors – AIFMD) or alternatively self-managed, with the management function, being delegated to an investment committee.

Other requirements that are bespoke to loan funds, are the creation of a credit risk policy, liquidity management policy and disclosure, records and reporting.

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