Taking advantage of the flexibility provided by EU Directive 2011/61/EU which provides that Members States may apply a lighter regime for sub-threshold AIFMs, a new legislation titled the "Law which provides for the Incorporation and Operation of Small Alternative Investment Fund Managers" came into force on the 3rd of July 2020 (the "Law").
According to the Law, small AIFMs, also known as "Mini Managers", can be set up in the form of a limited liability company pursuant to the provisions of the Law and of the Companies Law Cap. 113. The sole activities of a Mini Manager shall be the management of Alternative Investment Funds ("AIFs") as defined in article 6(5) of the AIFM Law and its registered office and central management shall be based in the Republic of Cyprus.
The Law applies to:
- Mini Managers of the Republic of Cyprus (also known as "Cypriot Mini Managers");
- Mini Managers of a Member State;
- Cypriot Investment Services (CIFs) that received CySEC's permission for managing AIFs.
Cypriot Mini Managers and CIFs can be appointed as external managers for the following AIFs:
- AIFs that are incorporated and operate in the Republic;
- AIFs that are incorporated and operate in a Member State, other than the Republic, or in a third country, provided that this is permitted by the law governing such AIFs;
- AIFs with a Limited Number of Persons ("AIFLNPs");
- Registered Alternative Investment Fund ("RAIFs") – as per article 135 of Law which provides for the Alternative Investment Funds and other Related Matters.
As external manager for (a), (c) and (d) above can also be appointed a Mini Manager of other Member State.
The main characteristics of Mini Managers include the following:
(a) Initial Capital:
Cypriot Mini Managers that apply to CySEC for a license, shall have a minimum initial paid up capital /own funds of EUR50.000 (Fifty Thousand Euros).
Where the value of the portfolios of AIFs managed by the Cypriot Mini Manager exceeds EUR125.000.000 (One Hundred Twenty Five Million Euro), the latter shall provide an additional amount of own funds which shall be equal to 0,02% of the amount by which the value of the portfolios of the Cypriot Mini Manager exceeds EUR125.000.000 (One Hundred Twenty Five Million Euro).
(b) Board of Directors and Senior Management:
The Board of Directors of a Cypriot Mini Manager consists of at least 4 (four) individuals out of which 2 (two) shall perform executive duties.
The shareholders or members of the Mini Manager that have qualifying holdings, are suitable taking into account the need to ensure the sound and prudent management of the Cypriot Mini Manager.
The head office and the registered office of the Mini Manager are located in the Republic of Cyprus.
(e) Permitted Activities:
- Portfolio management and risk management;
- Management of the AIF which includes:
- legal and fund management accounting services;
- customer inquiries;
- portfolio valuation and pricing, including tax returns;
- regulatory compliance monitoring;
- maintenance of unit/shareholder register;
- distribution of income;
- unit/shares issues and redemptions;
- contract settlements, including certificate dispatch;
- record keeping;
- activities related to the assets of the AIF, namely services necessary to meet the fiduciary duties of the Mini Manager, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters advice and services relating to mergers and the purchase of undertakings and other services connected to the management of the AIF and the companies and other assets in which it has invested.
(f) Delegation of functions:
Subject to the following conditions, a Cypriot Mini Manager may delegate to a third person one or more of its managing functions:
- the Cypriot Mini Managers has notified CySEC in writing about the subject delegation, before such delegation comes into force;
- such delegation does not prevent the effective supervision of the Cypriot Mini Manager and more importantly it does not hinder the operations of the AIF;
- the Cypriot Mini Manager does not delegate its functions to an extent that would result for it not to be considered as the manager of the AIF.
- In case where the delegation concerns the management of portfolio or the risk management, such delegation shall be allowed to be made only to entities that received license for asset management pursuant to article 78 of the EU Regulation 231/2013 or to entities received the prior approval of CySEC.
A Cypriot Mini Manager is allowed to manage AIFs only upon receiving CySEC's relevant authorisation.
In order to be duly authorised, a Cypriot Mini Manager, shall submit an application for authorisation to CySEC accompanied by the following:
- Information on the persons effectively conducting the business of the Mini Manager;
- Information on the identities of the Mini Manager's shareholders or members;
- Business Plan and internal regulations setting out the organisational structure of the Mini Manager including information on how the latter intends to comply with its obligations;
- Information on arrangements made for the delegation of functions to third persons pursuant to the provisions of articles 23 and 25 of the Law;
- Information about the investment strategies, the risk profiles, the use of leverage and other characteristics of the AIFs it manages or intends to manage, including information about the member states or the third countries in which such AIFs are established or are expected to be established.
- Information on where the master AIF is established if the AIF is a feeder AIF;
- Information on the arrangements made for the appointment of the depositary – in case this is required by the applicable law governing the said AIF.
(h) Transitional provisions:
CIFs that, prior to the entry into force of this Law, received CySEC's authorisation pursuant to the provisions of the "Law which provides for the Provision of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and Other Related Matters of 2007 to 2016" or "the Law which provides for the Provision of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and Other Related Matters of 2017 to 2020 for the management of AIFs, are considered to be Mini Managers and may continue to provide such activities provided that within 9 months from the entry into force of the Law, they shall take all necessary measures to comply with the provisions of the Law.
For this purpose, prior to the lapse of the 9 months, the mentioned CIFs shall inform CySEC about the compliance measures taken or to be taken by them and submit a written confirmation by their Board members in regard to their compliance with the provisions of the Law.
In case of non-compliance with the above within the set deadline of 9 months, the mentioned CIFs will not be allowed to provide management functions pursuant to the provisions of the Law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.