Growing competition on the island of Malta

Growing competition on the island of Malta

“Malta will be on the rise for the next few years. I don’t see a reason why it should stop, irrespective of the financial crisis, because [the crisis] is giving a reason for other players to look for alternatives,” declares Kevin Caruana, managing director at Custom House Global Fund Services, part of the TMF group. His thoughts echo those of others in the fund administration business in the jurisdiction. Malta continues to be an attractive place for fund administration. From only a handful of companies a few years ago, the island now has nearly 30 fund administrators.

With Citco expected to set up shop, many think the industry overall could get a fillip as larger funds start considering Malta as an alternative to the more expensive and relatively crowded markets of Ireland and Luxembourg. For Custom House, Malta has been on the radar for some time. In September 2008, Custom House merged with the fund services business of what is now the TMF Group and reorganised under Custom House Global Fund Services, the Maltesebased holding company for the group. Malta was the only jurisdiction where both entities had fund administration operations. TMF has around 10 people still operating separately from Custom House in Malta, but that is expected to change in 2013 when the two are completely merged. In terms of new business coming through the sales team, which is centred in Dublin, Malta is one of the fastest-growing locations for the group, according to Caruana. Its Malta office has grown from around eight people in December 2009 to 30 people.

“That is because the group realises Malta not only offers qualified personnel but is actually a centralised hub that the market players can relate to,” says Caruana. “Malta is now very much more in the international geography and it is recognised as an institution. We have fund managers, clients of ours who have actually opened shop in Malta, have moved their fund administration to the Malta office. We believe that Malta and [the fund administration] industry is going to be a key operational office for Custom House.” Custom House in Malta services one of the largest fund structures domiciled on the island, the Royal Bank of Canada funds, which have assets under management (AUM) of more than $2 billion. But this is unusual for the jurisdiction. Most business for administrators and others remains well below the $100 million mark with many even below $50 million. “Ironically the financial crisis in a way gave Malta a push,” says Caruana.

“[The crisis] forced people to look for a new option. Investors wanted a new jurisdiction to look for onshore investment rather than maybe typical offshore businesses that we were accustomed to before. As long as Malta keeps its standards high and has a business-minded approach I think we can still increase [our market share]”. Struggling with the question Caruana’s comments reflect a question Malta’s funds sector is struggling with. On the one hand, Malta is seen as a niche market for small asset structures or strategies. However, Caruana believes Malta should not be selling itself short. Irrespective of where the fund is domiciled, he says, it is “easy to service” it in Malta.

Pluses for Malta include the fact it is an EU onshore jurisdiction with English as an official language. “As the demand increases and resources start to get stretched, it could lead to delays and it could lead to increases in general costs, which might eat up our advantage,” warns Caruana. “On the positive side I think government and the opposing parties are in agreement. They are doing as much as they can to make [Malta] attractive for clients and service providers. I like to think we will always be in a position to supply demand.” With the expected arrival of Citco in 2013, Caruana admits competition will be tougher. “Citco coming in means more business to the island and increasing the profile of the industry,” he says, adding, “The biggest competition is going to be regarding staff rather than business.” Another fund administrator that has been feeling the pinch of recruiting staff is Alter Domus, founded in Luxembourg with origins in accountants PricewaterhouseCoopers.

The Malta operation began in September 2010 as a greenfield operation. “We basically had very few clients and they were on the corporate side,” says Chris Casapinta, managing director in Malta. The company received its fund administration licence in 2011 and began servicing mainly Cayman Islands funds. ”In the meantime we started building a name here locally.” Now the office employs 23 people, “which is decent by Maltese standards”, says Casapinta. Although the operation in Malta began offering corporate, accounting and directorship services, fund administration has quickly overtaken. “I expect in 2013 our revenue will be 70% fund administration and 30% corporate services. On the corporate side in Malta, it is very competitive, prices are going down,” he says, adding, “It is the same on fund administration at the moment but less competitive. On the corporate side it is really competitive and we have been seeing a lot of new entrants into the market.”

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