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Cypriot Alternative Investment Funds – Breakdown

Cypriot Alternative Investment Funds

Since July 2014 Cyprus has enacted the Alternative Investment Funds Law, No. 131(I)/2014 (AIF Law). Since then Cyprus has grown to be one of the main financial centers in Europe and is now the focus for Alternative Investment Funds as they keep on gaining popularity. Following is a general breakdown of what funds can be established currently in Cyprus.

Legal Forms

  • Fixed Capital Company
  • Variable Capital Company
  • Limited Partnership
  • Common Fund (only for AIFUNP)

Investors

  • Professional Investor – An investor that satisfies the regulatory requirements under MiFID to possess the necessary experience, knowledge and expertise to make investment decisions and undertake the incurring risk.
  • Well-Informed Investor – An investor that does not satisfy MiFID criteria to be considered professional but confirms in writing that is aware of the risks involved and is found suitable by the fund assessment to possess sufficient experience and knowledge to undertake the investment. Well-informed investors must make at least an investment of €125,000.
  • Retail Investor – An investor who is neither professional nor well-informed investor.

AIF Types

  • AIF with Limited Number of Investors (AIFLNP) – can have upto 75 members of professional and/or well-informed investors only. This type is not subject to investment limits or investment restrictions.
  • AIF with Unlimited Number of Investors (AIFUNP) – can have unlimited number of investors without investor type limitations but are subject to investment limits and investment restrictions.

AIF Managers

  • Internal – A fund can be self-managed by its board of directors subject to certain restrictions (cap on value of the assets under management, restrictions on leverage, lock-up periods).
  • External (AIFUNP) – It can be a licensed local Management Company or Investment Firm, or an AIF Manager established in a third country if it operates in compliance within the applicable local legislation.
  • External (AIFLNP) – It can be a licensed local Management Company or Investment Firm. It can also be a legal entity established locally for the purpose of managing the Fund or a legal entity established in a third country providing assets management services and subject to prudential supervision.

Capital Requirements

  • for AIFUNP €125.000 with external management
  • for self-managed AIFUNP €300.000 (applies separately for each investment compartment)
  • AIFLNP are not subject to minimum capital requirement

Assets Under Management

  • for AIFUNP certain restrictions may applied subject to the size of the funds, target audience and the appointed manager
  • for AIFLNP they must not exceed the threshold of €100 million (including leverage) or €500 million on 5 year lock-up period without leverage

Depository

  • Can be local or in an EU member state.
  • The Depository can be in any third country that Cyprus Securities Exchange Commission (CySEC) has a signed Memorandum of Understanding for Cooperation and Exchange of Information with the relevant authorities of said country.
  • A small AIFLNP may not appoint a depository subject to conditions.

Additional information

  • a Cypriot Fund can be an Umbrella Fund, meaning it can use multiple investment strategies with the purpose of investing and managing a number of different assets.
  • the fund has the ability to issue shares that can be transferred, listed in the stock exchange or publicly offered.
  • the fund can be market freely to professional and well-informed investors inside EU upon authorization, for retail clients the fund must obtain approval from each member state regulator
  • AIFUNP can be listed on official stock exchanges while AIFLNP can be freely transferred among professional and well-informed investors

Additional Key Persons/Departments Involved

  • Auditor
  • Legal Advisor
  • Money-Laundering Compliance Officer (MLCO)

If you are interested in setting up an AIF in Cyprus and would like to know more do not hesitate to contact us at info@cxfinancia.com.