AIFs s & & UCITS TS in Cyprus rus and IPOs on “ECM” Cyprus Alternative Investment Funds Anna Philiotis, Director, Eurofast
A longstanding track record • 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". 2014 Enactment of 2012 1999 AIF law 2018 Transposition Enactment of the repealing ICIS AIF law of UCITS IV ICIS Law law 2018 Regulatory timeline 2007 2013 2016 Transposition Transposition Transposition of MiFID AIFMD UCITS V
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
What is an “AIF”? • 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 owning the assets jointly.
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 Same as AIF No prior authorisation supervision required by CySEC Legal forms Investment company, Limited Investment company, Limited Same AIF Partnership, Common Fund Partnership Eligible Professional/well informed or Professional/well informed Professional/well investors retail informed Number of Unlimited Up to 50 (in case of umbrella Unlimited investors fund, the limitation applies across all sub-funds) Min AUM €500,000 €250,000 €500,000 within 12 months Fund AIFM in Cyprus or in the EU. AIFM not applicable. AIFM in Cyprus or in the management UCITS Management co. UCITS Management co. EU. MIFID compliant IF MIFID compliant IF If close-ended LP Sub-threshold Sub-threshold manager(CY/EU). investing in illiquid assets: manager(CY/EU). Self-managed IC, LP UCITS Management co. Self-managed IC, LP MIFID compliant IF Sub-threshold manager(CY/EU).
3 types of AIF AIF AIFLNP Registered AIF Minimum share No min requirement if externally Self- managed, €50,000 Not subject to capital capital managed. Externally managed: N/A requirements as it must be requirement If self-managed: externally managed Below threshold: €125K Above threshold: €300K Assets under No restriction if: Not to exceed the AIFM No restriction if: • • management AIFM is externally thresholds: AIFM is externally • (AUM) appointed or Up to €100MM including appointed or • • If AIF is internally-managed leverage or, If AIF is internally-managed • and where AUM exceeds up to €500MM with no use of and where AUM exceeds €100MM including leverage leverage & no redemption €100MM including leverage or €500MM with no use of rights for 5 years or €500MM with no use of leverage & no redemption leverage & no redemption rights for 5 years therefore rights for 5 years therefore complying to AIFM Law complying to AIFM Law Cyprus, EU or 3 rd country based. Depositary With AIFM: Cyprus depository With AIFM: Cyprus depository requirement only. Requirement may be waived if: only. (i) up to 5 investors or Without AIFM: Cyprus, EU or 3 rd Without AIFM: Cyprus, EU or 3 rd (ii)AUM< EUR 5MM or country based (iii)fund limited to 25 investors, country based each investing min EUR 500K and up to 10% of assets subject to custody
Legal forms Investment company Limited Partnership Common Fund (VCIC/FCIC) Structure An incorporated body Subject to the AIF and Subject to Partnerships constituted between an Companies Law. Law and AIF law. external manager and the depositary. Open-ended/Close-ended ✓ ✓ ✓ Management structure BoD of the investment BoD of the General BoD of the external company Partner manager Separate legal personality The General Partner may elect for a separate ✓ X legal personality when LP is established AIF catergories AIF, AIFLNP, RAIF AIF, AIFLNP, RAIF AIF, RAIF
Key players of a Cyprus AIF Investors BoD Investment committee Administrator Accounting Depository Calculation of NAV Cash Monitoring Maintenance of Share Segregation of Cash Register Safekeeping of assets AIF Fund Reporting Oversight KYC procedures Reconciliation of cash Auditor Fund manager Annual audits (IFRS) Portfolio management SPV Review & compliance of Risk management activities Ensures compliance with Reporting duties the Directive
AIF with several compartments: Umbrella funds • 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.
Umbrella funds in Cyprus Investors Umbrella fund Sub-fund 2 Sub-fund 1 Sub-fund 3 Investment 4 Investment 1 Investment 3 Investment 2
AIF - VCIC Structure Management shares Investor shares (voting shares) (non voting) AIF - Variable capital AIFM company Sub-fund B Sub-fund A SPV Direct Investment Investment Multiple sub-funds allowing for different asset classes; open ended; institutional/ HNWI
RAIF – Private equity investment Management shares Investor shares (voting shares) (non voting) RAIF - Variable capital AIFM company Sub-fund SPV Direct Investment Investment Single sub-fund; open ended; institutional/ HNWI
Limited Partnership Structure General Partner Limited Partners (Cyprus company) (investors) Investment Cyprus fund structured as committee a Limited Partnership Cyprus holding company Investments
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