Alternative Investment Funds (AIFS)
The enactment of the Alternative Investment Funds (AIF) law in July 2014 aligned the Cyprus legal and regulatory framework with EU directives on asset management, with the aim to enhance transparency and investor protection. Following on-going efforts to modernise its fund framework, Cyprus introduced the AIF Law offering more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus AIFs, as well as the regulation on the role and responsibilities of their directors, depositaries and external managers.
In July 2018, Cyprus further upgraded its legislative framework reflecting the latest market demands and introducing a new product called the Registered Alternative Investment Fund (RAIF) which offers new opportunities for a quick and cost-effective fund launch.
Key Features of the RAIF
- No licencing required
- No Minimum Capital Requirements
- No Investment Restrictions
- Multiple Compartments Possible
- Can operate as open or close ended
- Units of RAIFs may be listed
- Requirement to appoint local Depository
- Addressed solely to Well-Informed and/or Professional Investors
The fund manager must qualify as a full-scope Cyprus or EU Alternative Investment Fund Manager (AIFM) under the AIFMD 2011/61/EU. Where the RAIF is set up as a closed end type Limited Partnership which invests more than 70% in illiquid assets, an EU regulated sub-AIFM may pursue the registration route for a RAIF.
Alternative Investment Fund with Unlimited Number of Persons
- May be marketed to retail, or well-informed and/or professional investors
- Freely transferable investor shares
- Must appoint a Depositary
- Can be listed on a recognised stock exchange, and AIFs marketed to retail investors can be traded
- May be internally managed
- Minimum share capital requirements of €125,000 are valid for internally managed funds.
- May be subject to certain investment restrictions depending on the investor type and the overall investment policy. AIFs addressed to WIPIs shall not be subject to investment restrictions, except Loan Origination Funds, Money Market Funds, Venture Capital Funds and Funds of Funds.
Alternative Investment Fund with Limited Number of Persons
- May be marketed only to well-informed and/or professional investors (WIPIs)
- Maximum number of investors is limited 50
- Freely transferable investor shares, with the condition that their transfer does not result in the AIF having more than 50 investors
- May not be required to appoint a Depositary in certain circumstances such as (i) when its total assets do not exceed €5 million (or currency equivalent) including any investment compartments thereof, or (ii) its instruments of incorporation limit the number of its unitholders (including any investment compartments thereof) to 5 persons for the duration of the life of the AIF, or (iii) 90% of the assets are not subject to custody and the number of investors are limited to 25 and provided each investor subscribes a minimum of €500,000
- 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)
- May be internally managed
- Minimum share capital requirements of €50,000 are valid for internally managed funds.
AIFs at a Glance
| AIF with Limited number of Persons | AIF with Unlimited number of Persons | Registered AIF (RAIF) | |
|---|---|---|---|
| Regulatory Authority | CySEC | CySEC | CySEC – however no licensing required |
| Limitation on number of Investors | 50 (with look through provisions) | Not applicable | Not applicable |
| Available Structures* | Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIC), Limited Partnership (LP) | Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIC), Common Fund (CF), Limited Partnership (LP) | Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIC), Common Fund (CF), Limited Partnership (LP) |
| Umbrella Funds | Possible for all structures | Possible for all structures | Possible for all structures |
| Minimum Share Capital | Internally managed funds only €50,000 | Internally managed funds only €125,000 | Externally managed, the RAIF does not require minimum share capital |
|
External Manager Licensing Requirement |
No, can be internally managed | No, can be internally managed | Yes, always externally managed |
| Director Requirements | Fit and Proper | Fit and Proper | Fit and Proper |
| Depositary Requirements | Based in Cyprus, EU or third country that has cooperation agreement with Cyprus; exemption in specific circumstances | Based in Cyprus, EU or third country that has cooperation agreement with Cyprus. When managed by AIFM shall be located in Cyprus | Always based in Cyprus, except for Limited Partnerships managed by a MiFID entity |
| Reporting ** | Audited annual report and half-yearly unaudited report to be submitted to CySEC and made available to unitholders | Audited annual report and half-yearly unaudited report to be submitted to CySEC and made available to unitholders | Audited annual report and half-yearly unaudited report to be submitted to CySEC and made available to unitholders |
| * Amendments to the current Partnership Law will allow the General Partner to elect for legal personality of the Limited Partnership upon its establishment ** Additional reporting requirements apply for AIFs with unlimited number of persons which are subject to the AIFM Law and for Registered AIFs, the scope and frequency of which depend among others in the type of AIF managed by the AIFM and the level of AuM |
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More info about AIFs
Visit the website of Cyprus Securities and Exchange Commission for the relevant legislation and regulatory framework.
Regulated Structures
UCITS
Undertakings for Collective Investment in Transferable Securities are collective investment schemes, principally designed for retail investors, established and authorised under the harmonised European Union (“EU”) framework.
MANAGEMENT COMPANIES
Cyprus offers unique benefits for Managers of UCITS, AIFs and for Mini-Managers. Over the years, the number of managers choosing Cyprus as their operation base continues to increase.
