Cyprus Alternative Investment Funds Anna Philiotis, Director, - - PowerPoint PPT Presentation

Cyprus Alternative Investment Funds

AIFs s & & UCITS TS in Cyprus rus and IPOs on “ECM”

Anna Philiotis, Director, Eurofast

• AIFs are governed by the "AIF Law" of 2018 and the “AIFMD Law” of 2013.

The AIF Law was enacted in 2014 repealing the International Collective Investment Schemes Law ("ICIS Law"), in place since 1999.

• AIF Law provides the legislative framework for the recognition, regulation &

supervision of AIFs and to those associated with these (directors, managers)

• AIFs are authorized and regulated by "CySEC".

1999 Enactment of the ICIS Law 2018 AIF law of 2018 2014 Enactment of AIF law repealing ICIS law

Regulatory timeline

2007 Transposition

• f MiFID

2012 Transposition UCITS IV 2013 Transposition AIFMD 2016 Transposition UCITS V

A longstanding track record

Why is Cyprus an attractive funds jurisdiction?

• The single EU passport has opened up prospects for Cyprus to be used as a

base for setting up funds to access European investor markets.

• Cost-effective jurisdiction with simple procedures for set-up (approx. EUR15K).
• A business-minded regulator (Cyprus Securities & Exchange Commission)
• A comprehensive legal framework based on English law
• Transparency through harmonization & disclosure ->investor protection
• CIFA a member, affiliate, collaborator with international organisations:

– European Fund and Asset Management Association (EFAMA) – International Investment Funds Association – International Capital Market Association (ICMA)

A robust & dynamic funds sector

• Cyprus is rapidly growing as a centre for private & public investment funds
• Assets under management: EUR 6.7Bn (June 2019)
• AUM have increased 148% since 2016 from EUR 2.7Bn to EUR 6.7Bn.
• Over 150 investment funds authorized in Cyprus
• Over 30 EU fund management companies authorized in Cyprus

A longstanding track record

Source: CySEC Quarterly Statistics-Aug 2019

• A collective investment undertaking.
• A national product
• It raises external capital from numerous investors and invests it in

accordance to a defined investment strategy.

• Does not qualify as a UCITS fund.
• It may be open or close ended.
• It may or may not be listed on recognised stock exchanges and freely

traded to retail investors

• An AIF can invest in the following: private equity, real estate, venture

capital funds, derivative instruments, commodities, mortgage related

• securities. Also in non traditional asset classes such as ships, wine,

forests.

• Investors’ interests may be represented by shares/units in the AIF or by
• wning the assets jointly.

What is an “AIF”?

What does managing an “AIF” mean?

• An AIFM is an entity that provides at a minimum portfolio management

and risk management functions to one or more AIFs.

• An AIFM may also be authorized to perform:

– Legal and fund management accounting services – Customer inquiries – Valuation and pricing as well as tax returns – Regulatory compliance monitoring – Marketing

• An AIF is subject to a full-scope AIFM if its AUM:
• exceeds EUR 100MM with leverage or
• exceeds EUR 500MM without leverage

and no redemption rights for 5 years

3 types of AIF- characteristics

AIF AIFLNP Registered AIF Regulation Prior authorization & ongoing supervision required by CySEC Same as AIF No prior authorisation Legal forms Investment company, Limited Partnership, Common Fund Investment company, Limited Partnership Same AIF Eligible investors Professional/well informed or retail Professional/well informed Professional/well informed Number of investors Unlimited Up to 50 (in case of umbrella fund, the limitation applies across all sub-funds) Unlimited Min AUM within 12 months €500,000 €250,000 €500,000 Fund management AIFM in Cyprus or in the EU. UCITS Management co. MIFID compliant IF Sub-threshold manager(CY/EU). Self-managed IC, LP AIFM not applicable. UCITS Management co. MIFID compliant IF Sub-threshold manager(CY/EU). Self-managed IC, LP AIFM in Cyprus or in the EU. If close-ended LP investing in illiquid assets: UCITS Management co. MIFID compliant IF Sub-threshold manager(CY/EU).

3 types of AIF

AIF AIFLNP Registered AIF Minimum share capital requirement No min requirement if externally managed. If self-managed: Below threshold: €125K Above threshold: €300K Self-managed, €50,000 Externally managed: N/A Not subject to capital requirements as it must be externally managed Assets under management (AUM) No restriction if:

• AIFM is externally

appointed or

• If AIF is internally-managed

and where AUM exceeds €100MM including leverage

• r €500MM with no use of

leverage & no redemption rights for 5 years therefore complying to AIFM Law Not to exceed the AIFM thresholds:

• Up to €100MM including

leverage or,

• up to €500MM with no use of

leverage & no redemption rights for 5 years No restriction if:

• AIFM is externally

appointed or

• If AIF is internally-managed

and where AUM exceeds €100MM including leverage

• r €500MM with no use of

leverage & no redemption rights for 5 years therefore complying to AIFM Law Depositary requirement With AIFM: Cyprus depository

• nly.

Without AIFM: Cyprus, EU or 3rd country based Cyprus, EU or 3rd country based. Requirement may be waived if: (i) up to 5 investors or (ii)AUM< EUR 5MM or (iii)fund limited to 25 investors, each investing min EUR 500K and up to 10% of assets subject to custody With AIFM: Cyprus depository

• nly.

Without AIFM: Cyprus, EU or 3rd country based

Legal forms

Investment company (VCIC/FCIC) Limited Partnership Common Fund Structure Subject to the AIF and Companies Law. Subject to Partnerships Law and AIF law. An incorporated body constituted between an external manager and the depositary. Open-ended/Close-ended ✓ ✓ ✓ Management structure BoD of the investment company BoD of the General Partner BoD of the external manager Separate legal personality ✓ The General Partner may elect for a separate legal personality when LP is established X AIF catergories AIF, AIFLNP, RAIF AIF, AIFLNP, RAIF AIF, RAIF

Key players of a Cyprus AIF

Investors AIF Fund Fund manager

Portfolio management Risk management Ensures compliance with the Directive

Depository

Cash Monitoring Segregation of Cash Safekeeping of assets Oversight

Administrator Accounting Calculation of NAV Maintenance of Share Register Reporting KYC procedures Reconciliation of cash Auditor

Annual audits (IFRS) Review & compliance of activities Reporting duties

Investment committee BoD SPV

• The AIF can be structured as a multiple compartment fund, the umbrella

fund.

• Within the umbrella fund are separate sub-funds (compartments) within a

single legal entity.

• The sub-funds function as independent entities, each with its own

investment policy, target distribution, own statutory documents.

• The assets and liabilities of each sub-fund are ring-fenced.
• Each compartment is a separate tax- payer for tax purposes.
• 1 investment committee, 1 AIFM,1 depository, 1 auditor, 1 administrator
• Restrictions in cross investment between sub-funds.
• Each sub-fund can be liquidated/dissolved independently.

AIF with several compartments: Umbrella funds

Umbrella funds in Cyprus

Investors Sub-fund 1 Investment 1 Investment 2 Investment 3 Investment 4 Sub-fund 2 Sub-fund 3 Umbrella fund

AIF - VCIC Structure

Management shares (voting shares) Investor shares (non voting) AIFM Sub-fund A AIF - Variable capital company Sub-fund B SPV Investment Direct Investment Multiple sub-funds allowing for different asset classes;

• pen ended; institutional/ HNWI

RAIF – Private equity investment

Management shares (voting shares) Investor shares (non voting) AIFM Sub-fund RAIF - Variable capital company SPV Investment Direct Investment Single sub-fund; open ended; institutional/ HNWI

Limited Partnership Structure

General Partner (Cyprus company) Limited Partners (investors) Cyprus fund structured as a Limited Partnership Cyprus holding company Investments Investment committee

Th Thank ank yo you! u!

WWW.EUR EUROFAST ST.EU .EU FOLLOW US