Professional Management – Transparency & Regulation – Passporting Rights
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
