Cyprus has upgraded the legal and regulatory framework for collective investment funds in an effort to boost its funds industry.
Recently the Cyprus Parliament approved a new legislation which repeals and replaces the previously applicable Law 131(I)/2014 regulating Alternative Investment Funds (AIFs).
The introduction of the new legislation, is part of a commitment to modernize the existing regulatory framework pertaining to AIFs, aligning the Cyprus funds industry with recent EU and international developments and trends.
The new legislation constitutes a big development for Cyprus AIFs and the introduction of RAIFs is considered one of the most important changes made in the fund industry so far. The new law ensures that Cyprus not only remains competitive in the international scene as a fund’s jurisdiction, but that it also serves in providing even more flexibility to establish Cypriot funds and fund management entities.
Registered AIFs (RAIFs)
Registered AIFs (RAIFs)
In accordance with the AIF legal framework, there are no authorization requirements for a Cyprus RAIF since in effect a RAIF is indirectly subject to regulatory supervision through its Alternative Investment Fund Manager (AIFM).
Even though a RAIF is not subject to authorization, it must still submit a notification to CySEC in order to be registered to the RAIF Register. The Register is maintained by CySEC.
A RAIF may be established and operate as open-ended or close ended fund and take the following legal forms:
Variable Capital Investment Company (VCIC)
· Fixed Capital Investment Company (FCIC)
· Limited Partnership
· Common Fund
A RAIF may operate as an Umbrella Fund structure, with more than one investment compartments (sub-funds).
According to the AIF Legislation, the Umbrella Fund and the Sub-Funds constitute a SINGLE legal entity but each Sub-Fund is:
. Ring fenced and fully segregated from the Umbrella Fund and the other Sub-Funds.
· Each Compartment’s investors’ rights are restricted to the assets of the compartment.
· Each Compartment can be dissolved separately.
· Each Compartment can have its own investment strategy.
· The set-up and running costs of each compartment is lower than separate funds.
Due to the fact that RAIFs are not subject to authorization from CySEC, the supervision is performed indirectly through its Fund Manager. Therefore, it is required that a RAIF is Externally Managed by a Cyprus or EU Alternative Investment Fund Manager (AIFM).
The appointment of a Depository for the safekeeping of the RAIF’s assets is mandatory for all types of RAIFs.
For Cyprus RAIFs that are managed by an AIFM the eligible Depositaries include, Credit Institutions, Investment Firms or an institution under prudential regulation and ongoing supervision which have their registered office or a branch in Cyprus.
A RAIF’s permitted investment strategy is generally wide in order to meet its main objectives of a fast, efficient and flexible fund structure. However, a RAIF cannot pursue a Money Market policy, act as a Loan Origination Fund or a Fund of Funds. All other investment strategies are permissible.
One of the preconditions for the registration of a Cyprus RAIF is that it must be addressed exclusively to professional and well-informed Investors and it is not possible to be marketed to retail investors.
Limitation on Number of Investors
A Cyprus RAIF can have an unlimited number of investors.
Initial Capital Requirements
A Cyprus RAIF has no initial capital requirements.