Fund Management
The Cypriot Alternative Investment Funds (AIFs) are a form of investment vehicle that offers investors a range of options for investing in a variety of asset classes, including equities, fixed income instruments, commodities, and real estate. AIFs provide an opportunity for investors to diversify their portfolio and access a range of assets that may not be available through traditional investments. The Cypriot AIFs are regulated by the Cyprus Securities and Exchange Commission and provide investors with a safe and secure investment environment.
Pursuant to the Alternative Investment Funds Law (Law 124(I)/2018), AIF or Alternative Investment Fund is a collective investment undertaking, including investment compartments thereof, which raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors.
Pursuant to the Alternative Investment Funds Law (Law 124(I)/2018), AIF or Alternative Investment Fund is a collective investment undertaking, including investment compartments thereof, which raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors.
Introduction to Alternative Investment Funds in Cyprus
Fund Structures
AIF
An AIF can be set up as a variable capital investment company, a fixed capital investment company, a limited liability partnership (LLP), or as a mutual fund. Once the legal entity has been set up, it may proceed with applying for authorisation by CySEC as an AIF under the AIF Law. It should be noted that umbrella structures are possible for all set ups. Moreover, such funds can be either externally or internally managed (except in the cases where funds are set up in the form of mutual funds and LLPs). Once the legal entity has been set up and authorised by CySEC, the UCITS Management Company or the AIFM (as applicable) may initiate the procedure to market the units/shares of the Fund in the EEA on a cross-border/passporting basis.
AIFLNP
CySEC has implemented attractive solutions for the establishment of funds in Cyprus with the adoption of a unique national legislation. With respect to AIFs, CySEC has introduced the AIF with Limited Number of Persons/Investors (AIFLNP), an AIF whose assets must be below the AIFMD thresholds and may be exempted from appointing a depositary. AIFLNPs can be self-managed or externally managed by entities exempt from the scope of the AIFMD.
RAIF
CySEC, in 2018, introduced the concept of registered AIFs (RAIFs). A RAIF is always externally managed by an authorised AIF Manager (AIFM) under the AIFMD or where the RAIF is below the AIFMD thresholds it can be managed by a small AIF Manager (applicable only for certain RAIF types). RAIFs are not subject to authorisation by CySEC, however AIFMs intending to manage a RAIF will be required to submit a notification to CySEC for the inclusion of the RAIF on CySEC’s RAIF registry prior to distributing RAIF units to possible investors.
AIF – Advantages
Supervised by the CySEC and the new legislation fully in line with relevant EU directives
Full transparency through annual audited reports to CySEC and investors, which include financial statements, borrowing information, portfolio information and Net Asset Value
Flexibility has been increased since an AIF investment strategy can include several asset classes
Tax benefits: Significant tax incentives offered by the country’s advantageous tax framework, gains from trading in securities are tax exempt; profits on sale of securities are exempt; Cyprus tax resident funds can benefit from a wide array of Alternative Investment Funds double taxation treaties, etc.
Diversification: This investment vehicle offers diversification beyond the familiar world of debt and equity. It also offers a chance to own relatively complex asset classes. They require specialised knowledge for management. You would probably, otherwise, not indulge in this arena as the required knowledge is vast.
Lower volatility: The volatility is lower in the case of these funds in certain cases, as the asset classes are not intensely speculated upon. However, the exception is hedge funds. The others are invested with a relatively long-time horizon.
Lower transaction cost: The asset selection process is quite intense; however, the portfolio turnover is lower. This leads to overall lower transaction costs; however, the fund manager requires exceptional expertise across a very complex set of products, and this could potentially drive the fund management costs.
Direct ownership: This fund provides the opportunity for direct ownership in asset classes such as early-stage investing, venture capital, and private equity. This gives a greater sense of control and provision for potential control over the business operations. Thereby providing the ability to steer the business in a certain direction.
Potential for higher income: Since the investment selection is intense and is typically for the longer haul, there is potential for supernormal returns. However, this comes at a higher risk as well.
Cost-efficient and simple to set-up, manage and operate.