Contractual Funds are collective investment schemes which are set up by agreement and consequently do not have legal personality.

In response to renewed interest in the establishment of these types of funds, the MFSA has revisited the current provisions related to contractual funds under the principal legislation. The ensuing Investment Services Act (Contractual Funds) Regulations, 2011 have set out a more functional framework for the set-up, operation and regulations of these types of funds.

The main features of these Regulations are the following:

• A contractual fund is set up by a deed of constitution entered into by the fund manager and the custodian of the fund in accordance with the provisions of the Regulations.
• A contractual fund is licensed and regulated by the MFSA as a collective investment scheme under the Investment Services Act. It may be an open ended scheme or a closedended scheme.
• In a contractual fund the liabilities of a unit holder are limited to the amount agreed to be contributed by the unit holder for the subscription of units therein.
• Investors holding units in a contractual fund participate and share in the property of the fund. The property of the contractual fund (and any sub funds constituted thereunder) constitute a patrimony which is separate and distinct from the property of the unit holders, the manager and the custodian. Therefore, a creditor of a unit holder, of the manager, or of the custodian, cannot enforce any rights over the property held by the fund. The deed of constitution of the contractual fund may also stipulate that sub-funds shall be considered as a patrimony which is separate from the main fund and from other sub-funds under the same Scheme.
• Contractual funds may also set up a Special Investment Vehicle (SIV) for the purpose of investing and holding assets on behalf of the fund in accordance with the fund’s deed of constitution and prospectus. This SIV would take the form of a limited liability company set up under the laws of Malta. SIVs are regulated under and as part of the same collective investment scheme licence granted to the contractual fund.
• Generally, Investment Services Rules applicable to collective investment schemes and to their service providers also apply to contractual funds and their SIVs. However, the MFSA may issue rules that are specifically applicable to contractual funds and/or to an SIV established by a contractual fund.

MFSA Ref 04-2011