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Investor Classification for European Investment Funds

25/2/2019

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#funds #alternativefunds #aif #moi
One protection does not fit all. Professional, Well - Informed or Retail?
Based on the revised Markets in Financial Instruments Directive II and related implementing measures (together “MIFID II”), as incorporated in 144(I)/2007 Law which provides for the Provisions of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and other related matters an Alternative Investment Fund should classify its investors into one of the following three classifications:

  • Retail Investors, which are afforded the highest level of protection;
  • Well Informed Investors, which benefit from an intermediate level of protection;
  • Professional Investors, which benefit from an intermediate level of protection;

These respective investor classes reflect the fact that investors have different levels of knowledge and experience, and therefore, the level of regulatory protection differs. Such differences in the regulatory protection under MiFID II cover a broad range of topics including, among others, investor disclosure requirements, rules for executing investor orders, and assumptions which can be made regarding investors by an Alternative Fund.

The description of the three categories for classification of investors are the following:

Professional Investor

Professional investor is generally an investor who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risk that it incurs. In order to be considered a professional investor, the entity or person must comply with the criteria as follows:

  • Entities which are required to be authorized or regulated to operate in the financial markets. The list below includes all authorized entities carrying out the characteristic activities of the entities mentioned:
    • Credit Institutions
    • Investment Firms
    • Other authorized or regulated financial institutions
    • Insurance undertakings
    • Collective Investment schemes and management companies of such schemes
    • Pension funds and management companies of such funds
    • Commodity and commodity derivatives dealers
    • Locals
    • Other institutional Investors
 
  • Large undertakings meeting two of the following size requirements, on a proportional basis:
    • balance sheet total at least EUR 20,000,000]
    • net turnover at least EUR 40,000,000
    • own funds at least EUR 2,000,000

  • National and regional governments, public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the Internal Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organizations.
 
  • Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitization of assets or other financing transactions.

Where the investor of an Alternative Fund is an undertaking referred to above, the Fund must inform it prior to any provision of services that, on the basis of the information available to the Fund, the investor is deemed to be a professional investor, and will be treated as such unless the Fund and the investor agree otherwise. The Fund must also inform the investor that he can request a variation of the terms of the agreement in order to secure a higher degree of protection.
It is the responsibility of the investor, considered to be a professional investor, to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.

Well-Informed Investor

A Well-Informed Investor is any investor who is not professional, and satisfies the following criteria:
  • Confirms that:
    -  He either has sufficient knowledge and experience in financial and business matters in order to be able to assess the benefits and associated risks;
      or
           -  His business is related to the management, acquisition or sale of assets, either for its own account or on behalf of third parties, of the same types as the investments of the Fund;
   and
  • Either
    -  Invests at least €125.000
      or
           -  Has been assessed as a sufficiently well-informed investor by a credit institution, an AIFM, a UCITS Management Company, an Investment Firm, or any other EU subthreshold AIFM
      or
           -  Is senior officer in any of the entities mentioned above

  • Irrespective of the above mentioned, the investor is a person who effectively directs the activities of the Company or its external manager, or is a person who manages the investment of that particular Fund.
Retail Investor

Retail Investors enjoy the highest level of protection provided by law. A retail investor is an investor who does not meet the conditions required to be included in the professional investors’ or the well-informed investors’ class.

INVESTOR CLASSIFICATION - AIFS / AIFLNP / RAIF / UCITS

  •   AIF:   AIF funds are available to Professional, Well-Informed Investors or Retail Investors.
  •   AIFLNP:  AIFLNP funds are only available to Professional or Well-Informed Investors.
  •   RAIF:  RAIF funds are only available to Professional or Well-Informed Investors.
  •   UCITS:  UCITS funds are available to Professional, Well-Informed Investors or Retail Investors.

.
Professional
Investors
Well-Informed
Investors
Retail
Investors
AIF
⇃
⇃
⇃
AIFLNP
⇃
⇃
X
RAIF
⇃
⇃
X
UCITS
⇃
⇃
⇃
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The types of Alternative Investment Funds in Cyprus

18/2/2019

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#funds #alternativefunds #aif #moi
The Alternative Investment Funds Law of 2018 provides for three types of investment funds in Cyprus.
Alternative Investment Fund (AIF)

An AIF is available to an unlimited number of investors, which can be promoted to any investor, encompassing retail investors.
AIFs may be established as variable or fixed capital investment companies, common funds and limited partnerships. A single depository must be appointed for each AIF, which is established either locally or in another EU Member state or in a third country.
AIFs can be either internally or externally managed. Initial capital for authorisation under the legislation is necessary only for self-managed AIFs, since they also act as the fund’s manager, which will be €125.000.
However, both externally and internally AIFs will have to raise capital of at least €500.000 during their first 12 months of operations. Its Board of Directors shall be comprised of at least 2 executive and 2 non-executive directors.
AIFs are subject to the Categorisation Directive, which specifies their investment policy, depending on the category of investors to which they are addressed or marketed.

Alternative Investment Fund with Limited Number of Persons (AIFLNP)

An AIFLNP is available to 50 investors or less, which can be marketed only to professional or well-informed investors. AIFLNPs, may be established as fixed or variable capital Investment companies and limited partnerships.
An internally managed AIFLNP has a dual role (fund and fund manager) and therefore the legislation has introduced an initial capital requirement for internally managed AIFLNPs of €50.000. AIFLNPs must reach €250.000 within the first 12 months of their operation.
A Depositary may not be appointed when (a) the total assets of the fund do not exceed €5 million, or (b) the number of unit-holders is limited to five, or (c) the number of unit-holders is limited to 25 and only 10% of the fund’s total assets are subject to custody, and each unit-holder has invested at least €500.000 in the fund.
The new legislation also clarifies that, when the AIFLNP is self-managed, its Board of Directors shall be comprised of at least one executive and two non-executive directors.

Registered Alternative Investment Fund (RAIF)

RAIFs will be registered in a Registry but will neither be authorized nor regulated directly by CySEC. It will still be considered as ‘AIF’ by virtue of the Law, offering new opportunities for a quick and cost-effective fund launch.
Their supervision and monitoring will be performed by the AIF Manager (‘AIFM’), managing the RAIF. They can be marketed only to professional or well-informed investors.
The RAIF can be organised in any legal form available under Cyprus Law, it can be open or closed ended and be established with multiple compartments. There are no restrictions in its investment strategy, however the RAIF cannot be set up as Loan Origination, Fund of Funds or Money Market Funds.
Third country AIFMs will also be able to register RAIFs to CySEC, provided that their country of establishment has granted passporting rights pursuant to the AIFMD. RAIFs may also use EU marketing passport via its AIFM.

AIFLNP

AIF

RAIF

Licensing

Licensed by the Cyprus and Exchange Commission (CySEC)

Registered with CySEC not licensed

Legal Forms

Variable Capital Investment Company (VCIC)

Fixed Capital Investment Company (FCIC)

Limited Partnership (LP)

Common Fund (CF)

Variable Capital Investment Company (VCIC)

Fixed Capital Investment Company (FCIC)

Limited Partnership (LP)

Eligible Investors

May only be marketed to  “Professional” and/or “Well-Informed” investors

May be marketed to either “Professional” and/or “Well-Informed” or “Retail” investors

May only be marketed to “Professional” and/or “Well-Informed” investors

No. Investors

 Up to 50 investors

Unlimited number of investors

Min. Capital

EUR 50.000, if the fund is internally managed

EUR 125.000, if the fund is internally managed

N/A

Units

May not be listed or traded but may be registered on a special registry kept with the Cyprus Stock Exchange

May obtain an ISIN

May be listed or traded on a regulated market or  MTF

Investment Manager

Can be internally managed or appoint an external Fund Manager

Obligation to appoint a Fund Manager (AIFM)

Asset Classes

No restrictions

Subject to the Categorisation Directive

Cannot be set up as Loan Origination, Fund of Funds or Money Market Funds.

Assets under management

Up to EUR 100 ml including leverage or EUR 500 ml with no use of leverage and no redemption rights for 5 years

No restrictions if AIFM appointed

Up to EUR 100 ml including leverage or EUR 500 ml with no use of leverage and no redemption rights for 5 years if not AIFM appointed

No restrictions

Depositary

Cyprus, EU or in a third country based

May be waived if one of the following criteria is met:

- total assets of the Fund < EUR 5 mln

- up to 5 investors

- up to 25 investors with a minimum subscription of EUR 500.000 and only 10% of the Fund’s total assets are subject to custody

Mandatory appointment of a local Depositary if managed by an AIFM

Cyprus, EU, or in a  third country based if AIFM not appointed. May be waived in case the total assets of the AIF are not subject to custody.

Obligation to appoint a Depository

Umbrella Structure

Yes

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.
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Cyprus Registered Alternative Investment Fund - RAIF

11/2/2019

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Picture
#funds #alternativefunds #aif #moi
Registered, Self-Regulated, Fast, Cost-effective

The new Alternative Investment Funds Law 2018 (“AIF Law 2018”), regulating AIFs in Cyprus, has introduced a new category of AIFs, the Registered AIFs (“RAIFs”). This has been a long awaited development by the Cyprus Fund Industry, which significantly strengthens the country’s efforts of becoming a funds hub.  

A RAIF will be registered in a Registry held by Cyprus Securities Commission  but will neither be authorized nor regulated directly by CySEC. Responsible for the regulatory compliance of the AIF will be its External Manager, who should be a licenced AIF Manager (“AIFM”).

In addition to its management functions, the AIFM shall be responsible for the supervision and monitoring of the RAIF, by providing certain mandatory services, such as: risk management, compliance/AML and internal audit.   The RAIF will still be considered as ‘AIF’ by virtue of the Law, offering new opportunities for a quick and cost-effective fund launch, but can be marketed only to professional or well-informed investors. It may be organised in any legal form available under Cyprus Law, it can be open or closed ended and be established as an umbrella structure, with multiple compartments.

There are no restrictions in its investment strategy, however the RAIF cannot be set up as Loan Origination, Fund of Funds or Money Market Funds.

Third country AIFMs will also be able to register RAIFs to CySEC, provided that their country of establishment has granted passporting rights pursunt to the AIFMD.
RAIFs may also use EU marketing passport via its AIFM.

AIF
GENERAL CHARACTERISTICS

Licensing
Registered with CySEC / Not Licensed
Legal Forms
  • Common Fund (CF)
  • Variable Capital Investment Company (VCIC)
  • Fixed Capital Investment Company (FCIC)
  • Limited Partnership (LP)
Eligible Investors
May only be marketed to “Professional” and/or “Well-Informed” investor
Number of Investors
Unlimited
Min. Capital requirement
N/A
Listing / ETF
May be listed or traded on a regulated market or MTF
Investment Manager
Required / Alternative Investment Fund Manager (AIFM)
Assets under management
Cannot be set up as Loan Origination, Fund of Funds or Money Market Funds
Depositary
Required to appoint a local Depositary
Umbrella Structure with Segregated
Compartments

Yes
For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.
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Cyprus is the new European Investment Funds Domicile

4/2/2019

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#funds #alternativefunds #aif #moi
A new flexible regime to rival other onshore or offshore funds jurisdictions
Cyprus is now combining its proven tax efficient regime with the required infrastructure for the fund management industry to create a new dynamic and competitive European hub for fund management and administration. With the enactment of the Alternative Investment Funds Law 124(I)/2018 (the “AIF Law”) in July 2018, it now offers a modern and flexible legislative framework to all Alternative Investment Funds (AIF) types within the European AIFM Directive (AIFMD) enabling EU Passporting for AIF's.

The AIF Law of 2018, has introduced the Registered Alternative Investment Funds (RAIFs) regime and in addition fine-tuned the existing types of AIFs, including the AIFs with Unlimited Number of Persons (AIF) and the AIFs with Limited Number of Persons (AIFLNP)).

The regime is combined with the half century international business experience of professionals in Cyprus, the UK based legal system, the low cost and a business friendly government to create one of the most prominent offerings in the Funds Industry.
Cyprus aims to develop a world class fund sector and mark its position as a growing domicile for investment funds and asset management. The continuous upgrading of the legal framework is expected to raise investors confidence in the jurisdiction. For this year two new legislative initiatives are expected to pass into law, for the regulation of Fund Administration and the introduction of the Mini Manager.
Furthermore, the country’s attractive fiscal framework, English-speaking workforce and its competitive operating environment, will likely increase the island’s ranking as a domicile and servicing centre for both Alternative Funds and UCITS. The fact that fund managers are increasingly moving to Cyprus demonstrates the rapid development of the funds sector, attracting additional investments for the Cyprus economy.

Cyprus Fund Domicile Benefits
EU member state compliant with EU laws and regulations
Eurozone member
Strategic geographical location between Europe, Middle East, Asia and Africa
Mature business centre with highly qualified professionals and sophisticated infrastructure
Extensive range of excellent legal and accounting services
Cost-effective setting-up and on-going operational services
Favourable EU and OECD-approved tax regime
Access to an extensive network of double tax treaties allowing for tax efficient structuring of investments
Efficient and up-to-date regulation, fully harmonised with related EU Directives
Investment Funds may be listed on the Cyprus Stock Exchange and other recognised EU stock exchanges
Cyprus-based funds and asset managers benefit from low tax burdens levied on Cyprus-based corporations
Incentives and tax benefits for high-earning managers and high-net-worth individual
For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.
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