MFSA to Propose Rules on Cross Sub-Fund Investments

According to a Circular issued by the Malta Financial Services Authority (MFSA) on the 30th October 2012, addressed to the investment services industry, the MFSA is in the process of finalising the relative rules on cross sub-fund investments to be included in the Investment Services Rules for Professional Investor Funds.

In terms of the proposed amendments to the Rules, a sub-fund of a Professional Investor Fund targeting Qualifying and Extraordinary Investors will effectively be able to invest in units of one or more sub-funds within the same scheme, subject to this being permitted in the scheme’s constitutional documents and Offering Memorandum. The proposed guidelines provide that the following conditions will apply to any such cross sub-fund investments:

1. the sub-fund will be allowed to invest up to 35% of its assets into another sub-fund or sub-funds within the same scheme;
2. the target sub-fund/s may not themselves invest in the sub-fund which is to invest in the target sub-fund/s;
3. duplication of management, subscription and redemption fees must be avoided where the manager is the same or (in the case of different managers) where one manager is an affiliate of the other;
4. for the purposes of ensuring compliance with any applicable capital requirements, cross-investments will be counted once;
5. any voting rights acquired by the sub-fund from the acquisition of the units in the target sub-fund shall be disapplied as appropriate.

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