Attracting Hedge Funds

Published on the Malta Today¸ issue 1st December 2010

It is encouraging to read that Malta Enterprise is active in promoting the island for scores of economic opportunities that are now nascent post the global crisis recovery. Taking a walk down memory lane¸ during the early seventies¸ then Prime Minister Dom Mintoff was active in pulling favours while touring the world and requesting dignitaries to invest in Malta. There is ample scope why such trade missions should be intensified¸ and Malta Enterprise together with Finance Malta are starting to do their share.

A high-powered mission to the Gulf led by Prime Minister Lawrence Gonzi was a case in point. Yes¸ the potential is there and needs to be followed up. Our politicians may be too much bogged down to see the global picture¸ with all the tedious and never ending meetings in Brussels¸ which inevitably drain their energy. There is also so much to do to promote the opportunities in propping up the island as a centre for inward investments such as hedge funds.

A lot is being done through private initiatives funded by practitioners but the island needs more high powered delegations spearheaded by its political leaders. So what could the avenues towards attracting more hedge funds registered here.
First we must be familiar with what makes the hedge fund industry tick in competing countries such as London¸ Dublin and Luxembourg. As a broad statistic Malta boasts of circa 400 sub-funds which is a good start but there is a long way to go. It is rumoured that Deusche Bank is shortly starting business as a custodian. Still we have a lot to catch up with others.

It only adds up to about one out of fifteen of what Luxembourg hosts so far. The journey to catch up is long and we need not waste any time to make hay while the sun shines ie when other countries are in distress under the negative shadows of scandals such as the Madoff hedge funds and earlier ones such as the 1998 LTCM debacle.  So taking the initiative¸ we need to pack our bags and fly to other venues to promote Malta to investors to lure them to switch their attention and start using the unique regime on offer. Our level of transparency and ease of regulation can somewhat cool down the current controversy surrounding hedge funds complaining of excessive costs of regulation. In some jurisdictions they are not welcome and invariably  they are unjustifiably labelled as ‘wide west ‘investment products only fit for high rollers to invest in top risk and even breakneck rewards. There is also the issue of hedge fund fraud; some cite a small example of fraudulent hedge fund managers who have used false reports to deceive investors while they use their assets to pursue other interests.

Lately there has been a lot of talk following the banking fallout on trying to place some of the blame on hedge funds and thus push for heavier regulation particularly in America. Still hedge funds are growing in popularity and nothing seems to stem their appetite for success particularly in Europe. The accelerated growth of hedge funds comes partly from two reasons; expertise¸ and superior performance. Hedge fund managers are among some of the brightest the financial services industry had to offer. Of course their success is also attributed to the relative laxity of regulation and the ensuing flexibility that they currently enjoy. They are generally nimble to recognize changing market trends and they try to profit from such developing trends before other main