Answer ... The marketing of alternative investment funds (AIFs) is subject to notification or authorisation obligations, depending on the jurisdiction in which the manager is established and whether the fund is marketed to retail, well-informed or professional investors.
The Cyprus Securities and Exchange Commission (CySEC) has issued a relevant marketing directive which establishes the rules under which units are marketed.
Answer ... An AIF authorised by CySEC or a registered AIF (RAIF) which is registered in the register of RAIFs maintained by CySEC may market its units in Cyprus without obtaining further authorisation. However, if such entities intend to market their units outside Cyprus, this may be done subject to the relevant laws of the competent authorities of the target jurisdiction, and must be communicated to CySEC.
AIFs and RAIFs addressed to professional investors and managed by an AIF manager (AIFM) (in accordance with the provisions of the AIFM Directive) may market their units in other EU member states under the ‘passporting’ regime of the AIFM Directive. Such entities are not required to obtain additional authorisation from CySEC, since they are already authorised by the competent authority of their home member state. However, CySEC must be notified through a notification procedure.
Answer ... The rules and the procedure for obtaining authorisation, where applicable, are stated in the marketing directive issued by CySEC. Entities that wish to market their units in Cyprus and that are not entities mentioned in question 5.2 must submit an application form and send the relevant information to CySEC.
Answer ... Units of all types of AIFs may be marketed to professional and well-informed investors. However, only AIFs may market their units to retail investors, subject to the requirements set out by law.
Answer ... The marketing materials must be precise, clear and not misleading. In addition to the instruments of incorporation of the fund, the following materials, among others, should be disclosed to investors:
a description of:
- the investment strategy and objectives of the fund;
- the types of assets in which the fund may invest;
- any applicable investment restrictions;
- the circumstances in which the fund may use leverage; and
- the types and sources of leverage permitted;
- the identity of the manager of the fund, the depositary, the auditor and any other service provider;
- a description of the fund’s valuation procedure and the pricing methodology for valuing assets;
- a description of the fund’s liquidity risk management, including the redemption rights in both normal and exceptional circumstances, and the existing redemption arrangements with investors; and
- the procedure and conditions for the issue and sale of units.
Answer ... The marketing materials of the AIF must also outline:
- the possible benefits that investors may earn;
- their obligations as investors; and
- the risks which the investment may entail.
The marketing materials of an AIFLNP, as well as its instruments of incorporation, must specify that:
- the maximum number of investors is 50; and
- the fund is addressed only to professional and/or well-informed investors.
The marketing materials of RAIFs must include the following information, in capital letters:
- The RAIF is not authorised by CySEC;
- The RAIF is addressed only to professional and/or well-informed investors; and
- The RAIF’s registration in the RAIF register is not considered authorisation by CySEC.
Answer ... EU licensed managers may market units of funds in Cyprus under the European passporting system. In effect, EU licensed managers may market units in Cyprus, following a notification of authorisation issued by their competent authority to CySEC, without any obligation to obtain authorisation from CySEC.
Managers established in third countries may manage and market the units of a fund only if they obtain prior authorisation from CySEC.
Answer ... There is no requirement to appoint a local marketing entity in Cyprus.
Answer ... Only an AIF which is addressed to an unlimited number of persons may market its units to retail investors. This marketing is subject to authorisation by CySEC. The marketing materials must be precise, clear and not misleading, and must not contradict the information contained in the offering document. The marketing materials must contain the following:
- details of where and in which language the offering document may be obtained;
- the authorisation number of the AIF;
- a reference that the performance of investments in units is not guaranteed and that past performance does not guarantee future returns. In the case of an AIF with guaranteed performance, this reference shall be limited to the fact that past performance does not guarantee future returns;
- if the AIF replicates a stock exchange index, a specific statement on the attention that investors should pay to its investment policy; and
- if the net asset value of the AIF may have high volatility, a specific statement drawing the attention of investors to this fact.
CySEC may impose further obligations on AIFs or AIFMs regarding marketing to retail investors, although such obligations may not be stricter than the EU framework.