Cyprus' Alternative Investment Funds
Why are Cyprus' Alternative Investment Funds ("AIF(s)") recognised as "attractive Investment Vehicles" by Private Investors?
A volatile market is often related with riskier investments which, for some, may cause emotional turmoil and cloud investment decisions. This concept is referred to as Risk tolerance, which is the degree of “risk” a person is willing to undertake in order to achieve a particular returns.
With most private Investors, the elasticity of Risk Appetite is relatively inflexible, seeking stable returns on investments. One of the ways with which this has been achieved by Welath Managers and the like is by diversifying their investment portfolios by adding to it more asset classes such as of Funds and including Exchange Traded Funds (the "ETF(s)").
The regulatory framework around AIFs allows fund managers to utilise different Investment strategies, including a range of assets and can provide the flexibility required in a fast-moving market.
Cyprus' AIFs, as well as being a flexible investment tool also provide the benefits of the Cyprus Tax system, which is evident from the increase in numbers following the implementation of FATCA/CRS in 2014, and only strengthened when Offshore jurisdictions introduced local substance requirements thereafter.
Bellow, the chart was taken from the Central Bank of Cyprus' Investment Funds Statistics Publication of February 2021. Chart 6, shows the increasing number of Reporting Entities (i.e. the AIFs) in the republic of Cyprus which as at December 2020 stood at 222.
Benefits & Challenges of establishing a Cyprus AIF
Generally, investors seek high levels of transparency when it comes to performance and costs. This is achieved through well structured regulation as offered by the European AIFMD enacted in Cyprus with investor protection as its back bone.
Alongside the regulatory oversight a well developed professional services sector supports fund managers in tax, legal, accounting and audit with competitive set up and service Fees compared to other EU financial services hubs, make Cyprus an attractive jurisdiction for Small to Medium sized funds.
On the other side, a key challenge for Cyprus' Funds is the mandatory requirement to use local depositories which, although are improving, often the reason larger Funds may choose more established jurisdictions in the Fund Sector.
Another powerful Investment Vehicle in Cyprus' Integrated Fund Hub: The RAIF!
A Registered Alternative Investment Fund (the "RAIF") is another greatly attractive solution for the execution of all types of alternative Investment Strategies. Simply put, a RAIF is a Registered AIF and it is not authorised. In practise, a RAIF can invest in any asset category, ranging from Private Equity and Real Estate to Infrastructure and Debt Acquisition to Listed Securities.
RAIFs require much less substance than an authorised AIF and their incorporation process is fast and low in cost. This is due to the fact that RAIFs are not directly supervised by CySEC but through a Manager whom they must Register under, such as an Alternative Investment Fund Manager (the "AIFM”). The Manager must be regulated and will be subject to the AIFM Directive's strict regulatory conditions which ensure adequate protection of the Investors' Interest.
Finally RAIFs also offer the ability to market their products and services in other EU member states via a relatively simple notification process.
Cyprus for Funds
Cyprus currently offers one of the most international, business friendly and cost-effective environments for fund administration in the EU. After all the Island is Europe's Eastern stronghold at the crossroads of the continents of EU, Africa and Asia and is also a member to Key Economic Organisations such as The World Trade Organisation, the World Bank, the International Bank for Reconstruction and Development, the International Monetary Fund and many more.
An adept EU destination for Small to Medium sized Funds where offshore jurisdictions, including the Cayman Islands and the British Virgin Islands are becoming extremely difficult and costly Cyprus could be the answer for Fund setup onshore!