Malta is set to rival Luxembourg in meeting the growing pan-European demand for securitisation products – especially from investors who prefer English as a business language, delegates heard at this week’s Finance Malta Conference in Switzerland.
Malta’s Securitisation Act means it is the only European Union jurisdiction outside of Luxembourg that has the legislation in place to offer these flexible tools, Jeremy Leach, Chief Executive Officer, Managing Partners Group, said in his address.
A securitisation is a flexible tool for turning comparatively illiquid assets into transferable securities by taking ownership of them in a security that can then be listed on a European bourse. These listed securities are then recognised Exchange Traded Instruments and eligible for inclusion in a number of vehicles, including pension wrappers, fund platforms and UCITS funds.
Leach said: “While securitisations can be used for capital growth or income, the latter role is likely to be the most popular at present bedause investors are desperate to generate higher levels of income from their savings.
“A securitisation that invests in an asset class such as property could quite conceivably deliver an income of 5 per cent per annum. This is highly attractive to European investors. In the UK, for example, the current five-year gilt yield is just 0.79 per cent.
“Maltese securitisations are also likely to be more popular with English-speaking communities because that is the business language in Malta, whereas Luxembourg has a greater following from Benelux and other French-speaking jurisdictions. Exchange Traded Instruments (such as listed securitisations) are also eligible for inclusion in UK tax-reduction vehicles such as SIPPs, SSASes and ISAs.
“While some other EU financial centres might attempt to get into the securitisations market, it is far easier for smaller jurisdictions to establish the necessary laws and there are very few principalities that have the same passporting rights as Malta and Luxembourg.”
Leach said Managing Partners Group intends to offer securitisations and alternative fund management services to the pan-European market and Malta’s Securitisation Act has been a key factor in its decision to locate there, as well as its other attributes. He added: “Malta offers market access not just to the EU but Commonwealth countries, too. Its regulator, the Malta Financial Services Authority, is very approachable and has embraced European legislation, responding quickly to new directives such as the AIFMD, while Its push for Islamic banking demonstrates its intention to position Malta as one of Europe’s most important financial centres.”
Securitisations have, in the past, been perceived as risky investments because US banks used them to move ownership of toxic loan books off their balance sheets during the credit crisis. But the reality is that when securitisations are used correctly, they are extremely efficient, transparent investment vehicles that invest capital for a fixed period of time to pass on a healthy return to investors. The fact that investor capital is tied up for a fixed period means that no investor is able to exit early and compromise the liquidity position. As a bondholder, the investor has priority over the shareholder (usually the sponsoring bank or investment manager), who carries the greatest burden of risk.