Answer ... Alternative investment funds (AIFs), AIFs with a limited number of persons (AIFLNPs) and registered AIFs (RAIFs) are the most common types of funds in Cyprus. These funds may be structured as an umbrella scheme within the limits set out in the AIF Law.
Answer ... AIFs and RAIFs may take the following legal forms:
- a common fund;
- a variable capital investment company (VCIC);
- a fixed capital investment company (FCIC); or
- a limited partnership with no legal personality.
AIFLNPs may take the following legal forms:
- a limited partnership with no legal personality; or
- an investment company – either a VCIC or FCIC.
AIFs and AIFLNPs may be internally or externally managed. RAIFs must be managed by an external manager. All kinds of funds can be either open or closed-ended.
Answer ... An AIF in the form of an investment company (VCIC or FCIC) is established according to the Companies Law (Cap 113) and enjoys the same benefits as a common company. An investment company has a separate legal personality from its members and such members have limited liability, according to their participation in the capital of the company. Additionally, the taxation rules mentioned in question 8.1 are applicable to an investment company.
Partnerships are considered as transparent entities, with fewer formalities for their establishment according to the law. The operation of a partnership is mainly governed by the partnership agreement, which sets out the rules for the fund’s operation.
Answer ... The most common structure for AIFs in Cyprus is the investment company, either a VCIC or FCIC. Most investment companies are externally managed by AIFMs or management companies of undertakings for collective investment in transferable securities.
Answer ... CySEC’s latest statistics for assets under management in Cyprus, published on 5 March 2020, revealed an increase in the number of hedge funds and private equity funds operating in Cyprus. Most assets under management relate to the management of private equity funds. The most common structure for such investment strategies is a fund operating in the form of an investment company.
Answer ... Although fund administration may be performed by the fund manager in the course of the collective management of a fund, in practice, the function of the administrator is delegated to a third party located in Cyprus.
Answer ... AIFs and RAIFs which are externally managed by an AIFM must appoint a depositary based in Cyprus according to the AIFM Law. Internally managed funds and funds which are not managed by an AIFM must appoint a depositary which is based in Cyprus, in another EU member state or in a third country.
According to the AIF Law, the assets of the AIF must be entrusted to a depositary for safekeeping. If an external AIFM is appointed, the provisions of the AIFM Law regarding the duties of the depositary will apply.
AIFLNPs are exempt from the obligation to appoint a depositary if:
- the total assets do not exceed €5 million;
- the instruments of incorporation limit the number of investors to five; or
- the portfolio consists of assets subject to custody whose value does not exceed 10% of the fund’s total assets.
In order to protect the assets of the fund, the AIF Law provides that the assets must be entrusted to a depositary, and not to the external manager or to the board of directors, where the fund is internally managed. This avoids the possibility of a conflict of interest between the depositary, the AIFM, the fund and/or its investors. The AIFM Law provides that, subject to further requirements, credit institutions, investment firms and other categories of institution may act as depositaries. The AIFM Law also sets out specific rules on the duties and obligations of depositaries, and establishes different rules for the safekeeping of financial instruments and different types of assets.
Answer ... According to the AIF Law, it is possible to redomicile in Cyprus:
- a fund established as an investment company in another country, where the provisions of the Companies Law (Cap 113) will apply; and
- a fund established under the law of contract of another country.