#funds #alternativefunds #aif #moi

Management of Alternative Investment Funds (AIFS) is defined as comprising at least the core activities of portfolio management and risk management. If permitted by its legal structure, an AIF can be internally managed, which means that the same entity is both the AIF and the AIFM.


Managers of AIFs are subject to the rules of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (AIFMD), which was transposed into national law by the Cyprus Law of  2013 on Alternative Investment Fund Managers (AIFM Law).


The term “Alternative Investment Funds (AIFs)” as provided by the AIFMD refers to collective investment undertakings, which raise capital from a number of investors with a view to investing it in accordance with a defined investment strategy for the benefit of those investors, and which do no not qualify as UCITS. Hedge funds, real estate and infrastructure funds, private equity funds etc. are therefore targeted by the AIFMD, regardless of their current legal regime or form.


However, the AIFM Law provides exemptions for managers of smaller AIFs:

• AIFMs managing AIFs which are not leveraged and without redemption rights for a period of five years, and with aggregate assets under management below 500 million EUR;

 

• AIFMs managing AIFs whose assets under management, including any assets acquired through the use of leverage, do not exceed 100 million EUR.
  
  

They must register with the CySEC and can decide to opt in to the application of the AIFM regime to benefit from the marketing passport.


When the AIF is internally-managed, the fund itself can be considered as AIFM.

UCITS management companies may apply for authorisation as AIFMs, and vice versa, in order to manage both UCITS and AIFs. MiFID compliant investment firms and credit institutions are not required to obtain an authorisation under the AIFM Law to provide investment services to AIFs or AIFMs, but shares or units of AIFs in the EU can only be marketed in accordance with the AIFMD.

Where Cyprus is the home Member State of the AIFM or the Member State of reference for a non-EU AIFM, authorisation as AIFM is to be sought from the CySEC.

The AIFM Law provides further details on the AIFM’s operating conditions, the valuation of fund assets, the setting up of a remuneration policy, the possibility of delegating AIFM functions, the requirement to appoint a depositary and existing transparency requirements.

In return for more regulation, authorised AIFMs benefit from a passport enabling them to offer their management services and market their AIFs throughout the EU. The passport is subject to a notification procedure between the regulator of the EU Member State of establishment of the AIFM and the EU Member State being marketed into.


Eligible managers for AIFs, AIFLNPs and RAIFs established as a limited partnership

•           UCITS management company
•           EU investment firm
•           Self-managed (if fixed or variable capital company)
•           Special purpose vehicle (only for AIF-LNP)

            and one of the following conditions applies

Assets under management do not exceed the AIFMD thresholds of:

•          €100 million including leverage  or
  
  
•          €500 million without leverage, 5-year lock up period for investors
  
  

•          Alternative investment fund manager – AIFM is required in all other cases
  
  
  

Eligible managers for RAIFs

Registered Alternative Investment Funds (RAIFs) cannot be internally managed and they shall appoint as their external manager :

• An AIFM of the Republic

 

• An EU AIFM
  
  
• A non-EU AIFM, in case it may passport its services in accordance with
  Directive 2011/61/EU, and which has determined a member state of reference

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

Passporting allows UCITS and AIFs, as well as UCITS Managers and AIF Managers registered in Cyprus and licensed by CySEC, to manage and/or market funds across the EU, without having to apply for any additional authorisation.

Cyprus may therefore be used as a base for setting up funds, or for fund management companies looking to take advantage of the country’s advantageous framework to manage and/or market funds across Europe from Cyprus.

Passporting is a valuable asset for funds as it eliminates the red tape associated with gaining authorization from each country, a process which can be lengthy and costly for a business.  

UCITS Passport

UCITS benefit from the ‘passport’, introduced under the UCITS IV directive, by permitting them to be freely marketed within all EU Member States, without additional authorisation from the competent regulatory authority of each host Member State after successful completion of a simple notification process. Distribution of UCITS funds outside the EU, into selective jurisdictions remain via private placement and thus must satisfy local regulations that are significantly more complex and time consuming than the EU passport notification process.  

AIFM Passport

The Alternative Investment Funds Directive (AIFMD) has introduced a ‘passport’ for the distribution of units of AIFs to professional investors in the EU. Upon authorisation of Cyprus AIFMs, by CySEC, they can market their EU AIFs to professional investors in all Member States, using the simplified regulator-to-regulator notification mechanism. Non-EU AIFMs and non-EU AIFs have to seek permission from each Member State and comply with different national laws – the so called National Private Placement Regimes (NPPRs). The AIFMD provides a more complex and delayed transposition schedule applicable to non-EU AIFMs and non-EU AIFs wishing to raise capital in the EU. In this case and in view of the uncertainty as to when and if the passport will be extended to third countries, the NPPR still remains applicable. It is however foreseen that the NPPRs will soon end, which means fund managers will need to find another route to market their AIFs in Europe, such as using an AIFM compliant platform, such as ‘Fund Hosting’.

United Kingdom and Brexit

On 23 June 2016, the UK held a referendum on its membership in the EU. A majority of those voting voted for the UK to leave the EU.

On the UK's exit from the EU, the UK will no longer (subject to the outcome of the negotiations with the EU) have the benefit of the UCITS Directive and AIFMD. Therefore, the UK can lose certain rights that EU managers and AIFMs currently have.

These include the following:

• A UK investment manager of a UCITS that is established in another EU member state will no longer have the benefit of an EU passport to distribute its UCITS in the EU (subject to any solution reached in the exit negotiations). Therefore, the UK investment manager will need to either:

              - engage authorised distributors with the necessary capacity in the EU member states where it seeks to distribute its UCITS;
           
            or
                  - set up its own EU-based distributor (or UCITS ManCo).

• Other solutions could also be available, such as having UCITS board members represent it in cross-border sales (assuming the UCITS itself has passporting rights). However, this solution assumes a corporate UCITS structure and may not apply if the UCITS is externally managed.

In terms of managing EU AIFs, a UK AIFM will most likely have the same rights as a US AIFM (for example). However, a UK AIFM could no longer market its EU-domiciled AIFs cross-border within the EU. Although, similar to a US AIFM, a UK AIFM could act as investment manager to Irish funds and so continue its management activities, cross-border distribution will most certainly be affected.

UK managers that see the EU (even if only a few EU countries) as their target distribution base will need to ensure that they keep a foothold in the EU before enjoying the benefits of EU-regulated entities in the financial services industry.


The available options for UK managers include:

• Setting up a UCITS ManCo or AIFM in Cyprus
  
  
• Using a third party AIFM established in Cyprus.
  
  
• Putting their Fund on a third party platform that is already established in Cyprus.

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

#funds #alternativefunds #aif #moi

The AIF Law 2018 distinguishes between open-ended and closed-ended type of Cyprus AIFs.

 Open-ended type: Unit-holders can redeem or repurchase their units upon request:

•  at any time
• at regular intervals of less than 1 year, that are defined in the instruments of incorporation (or fund rules)
  
  

 Closed-ended type: Unit-holders can redeem or repurchase their units upon request:

• at regular intervals that exceed 1 year  but that do not extend to more than 5 years.    

Exception: For venture capital fund the initial periods extends up to 10 years from the date of      incorporation, in accordance with EU Regulation 345/2013.

• specific defined time that is defined in the instruments of incorporation (or fund rules).

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

The Cyprus Security and Exchange Commission (CySEC) is the regulatory authority responsible under the Law for the licensing and supervision of Investment Funds for both Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs) as well as any other type of Investment Fund.  The commencement of operations of Investment Funds requires authorisation from CySEC. The timeframe for the licensing process is approximately three to four months from the date of the submission of the application.

In the event the Fund Manager has appointed a Fund Administrator, the Administrator is usually responsible for the maintenance of the registry of the Unit-holders and all references to such registry shall include the Fund Administrator.

Moreover, as a form of Due Diligence of the Unit-holders the Manager is obliged to hold the identification documents for its Unit-holders. If the Depositary requests to have access in the unit-holders registry then the AIF Manager shall ensure so.

Additionally, the AIFM (Alternative Investment Fund Manager), the Depositary, the Administrator and any other related to the fund person, is obliged upon request of the CySeC, to provide access to the unit-holders’ registry and or any other information necessary to complete an inspection from CySeC.

Also, in case of a liquidation, the Manager is obliged to communicate with all the Unit-holders and such communication shall be notified to CySeC therefore providing indirect access to the registry of the Unit-holders to CySeC.

In addition, on opening of a Bank Account of the Fund and on every major transaction it is customary for the Bank to request the provision of the unit-holder register and the identification of the Beneficial Owner of all Unit-holders holding units above 25% of the total units of the fund.

Furthermore, the same request as above shall be made by other professionals, including the Depositary, the Fund Administrator, the Auditor and the Lawyer of the fund for the purposes of AML (Anti Money Laundering) Compliance Procedure.

What’s more, on the occasion of reporting a suspicious transaction to MOKAS (Unit For Combating Money Laundering) or otherwise an inspection by MOKAS, the AIF Manager is required to provide to MOKAS any information related to the AIF and may gain access to the Unit-holders’ registry as well.

Lastly, the AIF Manager shall provide data on investment fund shares/units to the Central Bank of Cyprus, used exclusively for statistical purposes. The law ensures the confidentiality of the submitted data which are published only in aggregated form without revealing the identity of the parties involved.

In conclusion, it is necessary to take into account that all of the above information derives from the Cyprus Law which applies within the Republic of Cyprus.



For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

A Cyprus Alternative Investment Fund (AIF) is cost-efficient and simple to set-up, manage and operate. It offers a modern regulatory framework that is in line with relevant EU directives and it is supervised by a competent and accessible regulatory authority. Setting up an AIF in Cyprus provides a solid base and signals trust infrastructure.

It provides full transparency and increased investor protection through annual audited and half yearly reports to CySEC and investors, which include financial statements, borrowing information, portfolio information and Net Asset Value.

There are no restrictions imposed by the regulator on type of investments and, subject to approval, a Cyprus AIF can be self-managed. Cyprus Alternative Investment Funds can be set-up as umbrella funds with multiple compartments and can be listed on CySEC and other recognized EU stock exchanges, provided that the number of investors is not limited.

Cyprus offers a number of important advantages for setting up an AIF:

• Low set up and maintenance costs
• Simple to set-up, manage and operate
• Modern regulatory framework fully in line with relevant EU directives
• Increased flexibility as a number of asset classes can be included in an AIF investment strategy
• Increased investor protection as complete transparency is obligatory
• Subject to the approval of CySEC, the AIF can be self-managed
• Can be set up as umbrella funds with multiple compartments, allowing the management of different asset pools with separate investment policies
• Significant tax incentives offered by the country’s advantageous tax framework
• Supervised by a competent and accessible regulatory authority
• No onerous ongoing reporting requirements to the regulator
• Stable and reliable legal system
• Alternative Investment Funds without limitations as to the number of investors can be listed on Cyprus Stock Exchange and other recognized EU stock exchanges and if marketed to retail investors can be traded.
  

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

 Cyprus Investment Fund may be established with limited or unlimited duration and can take the following legal structures:

(a) investment company in the legal form of a limited liability company with fixed capital (FCIC);
(b) investment company in the legal form of a limited liability company with variable capital (VCIC);
(c) common fund (CF), which is a contractual pool of assets without legal personality;
(d) limited partnership (LP) with or without legal personality.

Where is the Cyprus Alternative Investment Fund (AIF) established:

(a) in the legal structure of a common fund, its name shall include the term ‘common fund’. Also ;
(b) in the legal structure of an investment company, its name shall include the term ‘fixed capital investment company’ or ‘variable capital investment company’, as appropriate;
and
(c) in the legal structure of a limited liability partnership, its name shall include the term ‘limited liability partnership’.

* A common fund can be converted to Investment Company or Limited Partnership and it is only available when established as AIF with unlimited number of persons or as Registered AIF.  

** Amendments to the Partnership Law allow the General Partner to elect for legal personality of the Limited Partnership upon its establishment, while maintaining tax transparency status.


For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

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.
  
  

#funds #alternativefunds #aif #moi

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.

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.

#funds #alternativefunds #aif #moi

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.

For more information check Alternative Funds (AIF) or contact Michael O. Ioannides.