Malcolm Becker, chief executive of Butterfield Trust in Malta, has been here before. He has overseen financial services operations in Jersey, Bermuda, British Virgin Islands and Luxembourg and has a business instinct for some tell-tale signs.
“One of the best opportunities that Malta offers is fund administration,” says Mr Becker, who set up fund servicing groups in BVI and Luxembourg, both seen as hubs for mutual funds in their own regions.
Now he can see the potential to broaden his menu – currently comprising of structuring trusts for wealthy clients and finding partners to manage their assets – and set up a local fund administration arm for his unit’s owner, Bermuda’s Bank of Butterfield. “I can see what is on offer and that it is very cost efficient and effective to start up here.”
He notices the ranks of trained accountants and qualified students and compares the labour supply and regulatory environment to Ireland in the early 1990s, before Dublin’s International Financial Services Centre took off. Current weaknesses in the Caribbean could also work to Malta’s benefit.
“People have been going to the Cayman Islands due to a herd instinct,” says Mr Becker. “It is known as the place where you set up hedge funds. But it has become expensive and the very light touch regulation offered by the islands has started to look like their Achilles’ heel.”
Mr Becker relocated his trust and wealth management operation from Jersey in 2003, because he felt the Channel Island had reached saturation point, with huge difficulties for smaller organisations to attract qualified staff.
Praxis, a Guernsey-based administrator is another group which is dipping its toe into the warm Mediterranean waters surrounding the picturesque island. While only eight of the group’s 135-strong workforce are currently based in Malta, there is room for expansion. There is clearly enough local business for fund administrators to service, but there is an added attraction of being a cheaper destination to outsource business from other centres such as the Channel Islands. “We have more capacity and can recruit more professionals here,” says Nick Mahy, head of Praxis’ Maltese operation.
“People are also willing to relocate here. It’s a lot harder for us to put someone in Bangalore.”
The Praxis team was also taken unawares by EU-led advantages when it set up on the island in spring 2008, with its pitch to service alternative investment vehicles. “Things are changing so quickly. The EU badge was important to us, but we didn’t quite comprehend at the time how important it would become,” says Mr Mahy, who believes being part of a heavily regulated European jurisdiction will be the best route for wealth managers and administrators once political pressures begin to bite.
Malta is currently just one of four countries in the EU which achieved employment growth during 2009 and the financial sector, currently responsible for 12 per cent of the economy is being targeted by the government to double its size by 2015.
“We are seeing financial services take a more important role in the economic growth of our country,” says Tonio Fenech, Malta’s Minister of Finance, who says the concept of using Malta as a hub to service funds is probably the most attractive, now that high value manufacturing and information technology expansion have slowed.
Much of the growth is currently being driven by cost issues. “Malta cannot be called cheap,” says Andre Zerafa, partner at Valletta-based law firm Ganado & Associates. “But the costs which a fund manager would incur in Malta are around one third to half of what they would be levied in Luxembourg or Ireland. And since people are trying to reduce costs, Malta is figuring more in the plans of a number of providers.”
Most clients of Ganado are not “high end” groups, but lower tier houses with assets under management of between €500m and €3bn. “Most of them used to work for investment banks or wealth managers like Credit Suisse, UBS or Merrill Lynch,” he says.
The challenge which the regulator, the MFSA, now faces, is attracting a large custodian such as BNP Paribas or State Street to service the increasing numbers of these wealth managers. You only need one look at the filthy windows in the recently-built Portomaso Tower to see how the island has struggled to attract specialists. Malta does not have a single high-rise window cleaner. Once a year, a small team of “vision technicians” is flown in from Rome.
