Regulatory strength coupled with flexibility of structures as well as a solid professional workforce helped convince fund of hedge fund group Liongate Capital Management to open in Malta.

Liongate Capital Management is probably one of the most high-profile fund management companies to establish a sizeable base in Malta. “We’ve been pleased to work with Malta since the inception of our company there and have increased our presence in the country in a relatively short time,” notes Ben Funk, managing director and head of research at Liongate.

The fund of hedge fund company has been present in Malta since 2008 and celebrated its presence in the jurisdiction in April 2010 with the official opening of its local office.

Founded in 2003 by Randall Dillard and Jeff Holland, the group has $3 billion of assets under management (AUM) across four primary funds and a number of customised portfolio solutions for individual clients. From a permanent staff of four at inception, Liongate now has five offices in London, Dubai, Malta, Mumbai and Madrid and a 21-strong investment team of experienced professionals, each with wide-ranging and diverse backgrounds in finance, consulting and academia.

Liongate Capital Management’s flagship fund, the $1.9 billion Liongate Multi-Strategy Fund, launched in April 2004. It is a diversified fund of hedge funds (FoHF) portfolio. Other funds include the Liongate Select Fund, a more concentrated portfolio launched in November 2006, the Liongate Commodities Fund begun in January 2008, and the Liongate Defensive Fund, first offered in 2009.

Funk says the decision to locate staff in Malta was an easy one to make. “The jurisdiction offered better-priced talented labour and tax advantages. We were looking for a domicile to passport into the European Union. Part of the attraction was the benefit of a domicile with native English and a European timezone,” says Funk.

“Originally one of our investors mentioned Malta. We were intrigued and went to see if it was a robust jurisdiction,” adds Randall Hobbs, chief financial officer for the group. He says the jurisdiction had many positive attributes. Its regulation was similar to the UK Financial Services Authority offering “a good model”. His first meeting with the Malta Financial Services Authority (MFSA) also impressed Hobbs and the fact the regulator was open and easily ­accessible.

Liongate now has a large presence in Malta with many of its back office operations as well as a research capability based there. “A research component which is investment related, marketing and financial operations are based in Malta,” says Hobbs. Around $450m AUM is run from Malta through a variety of bespoke mandates of large clients as well as a commingled fund opened with one sovereign seed investor. These operations are not related to Liongate Multi-Strategy Fund.

“There are also some back office and financial functions,” notes Hobbs. “People there are trained professionals. A large part of the corporate side is managed out of Malta.

According to Funk new hires for Liongate are all made in Malta rather than the UK. With the uncertainty thrown up by the alternative investment fund managers (AIFM) directive, Funk thought it prudent to “be ahead of the curve” and have an EU domicile. “We understand Malta’s structures and have prepared for an unknown future,” he comments.

Liongate also saw Malta as a good place to domicile fund structures that need an EU domicile either because of investor preference or to access new sources of capital. Investors see Malta as an approved jurisdiction with a robust regulatory structure.

‘You want to have a good relationship with the regulator wherever you go. It’s important for the fund management industry. But the regulator needs to be robust while at the same time willing to give guidance on structures and strategies, their framework and the regulation. If you can’t approach the regulator about setting up a structure, it can take a long time. Direct communication in Malta was at a high level,” says Funk. But he concedes the MFSA “is no joke” and “is very stern in many regards”.

“Following the banking crisis there have been a lot of nervous clients. Most wanted to see more regulation and a legitimate regulator with hard rules rather than regulation light,” he adds. Funk admits “we would consider redomiciliation of our funds to Malta” if it became a requirement for working with European investors. He also expects more fund management companies to look at Malta. Already there are a few fund managers and management companies present in the jurisdiction and Funk “expects a greater number of AUM to be managed out of Malta in the future”.

The fact that Malta supports a master/feed structure could make it an ideal location if that sort of structure were needed in future for European clients. “There are different vehicles that are more appropriate and palatable to different environments and different investors. Not one size fits all,” comments Funk.

Hobbs believes Malta, although a smaller jurisdiction, will in future be able to support more staff. “We see growth in alternatives there,” says Hobbs. Liongate has made sure it has strong ties to the University of Malta and has been supporting students who are looking at jobs in the financial services industry and in particular in alternatives. “A couple of times a group of students have come to London to meet managers. These are finance or research students,” says Funk. Liongate also sponsors events with the Lund School of Economics. He says recruiting students out of universities, either in London or Malta, is a good way to “hire more permanent employees” in future.

Funk would like to work with the Maltese university to support research in fund management. The university is also looking at developing several fund-related programmes as well as courses designed to support fund administration and hedge fund accounting.

The introduction to the university came through Joseph Bannister, chairman and president of the MFSA. “He spoke about the opportunities coming from working with the university. It was a helpful conversation,” adds Funk.

Over the next several years, Liongate wants to grow its business using the “best possible structures”. “We’re trying to have a closer relationship with institutional investors. We want to ensure we cater for the individual investor,” says Funk.

While commingled funds are still the largest part of Liongate’s portfolio, Funk believes this may not always be the case. “The game changed. We have seen a strong inflow over the 12-18 months since the crisis. Some of it is commingled but more is into bespoke and tailor-made products for investors with a specific remit,” explains Funk.

“We needed a European domicile where we could build specific products for them. We have the capability and understand the fund structure. We invested in the appropriate legal structure that works for clients. A larger part of the industry over the next several years are going to be offering bespoke products and not just providing commingled funds that may not fit in with the overall investment needs of the client. FoHF vehicles may diminish as a conduit for investors,” he adds.

At present direct FoHF investment accounts for around 80% of all of Liongate’s investors. These are mainly institutional investors: pension funds, endowments, and government sovereign wealth funds. The remaining assets are managed for high net worth individuals with some retail products through private banks.

“Europe is the biggest market. It is a fairly significant investment base for us. We have investors from the UK, Germany, the Netherlands and Switzerland and some Scandinavian investors,” confirms Funk. There are also a few Japanese and Middle Eastern institutional investors and more recently interest from US investors.

Meanwhile, Liongate will continue to build its presence in Malta. Funk particularly believes the group needs to concentrate on research when “building any portfolio, bespoke or commingled”. Over the last year the research team has developed with “more quality research, understanding macro market trends and from there identifying managers.” No doubt Liongate will find a source of researchers as well as other types of professionals from its base in Malta in the future.