Answer ... Alternative investment funds (AIFs) and their managers (AIFMs) must disclose the following documents, among others, to investors:

• the offering document, fund rules and instruments of incorporation;
• a description of the liquidity risk management;
• the latest net asset value of the fund or the latest market price of its units, including a description of the valuation procedure and the pricing methodology for valuing assets;
• the annual report for each financial year; and
• a half-yearly report covering the first six months of the financial year.

An open-ended AIF addressed to retail investors must distribute to investors a key investor information document, along with the documents mentioned above.

Answer ... AIFs, AIFs with a limited number of persons (AIFLNPs) and registered AIFs (RAIFs) must provide the Cyprus Securities and Exchange Commission (CySEC) with the following:

• the offering document, fund rules and instruments of incorporation;
• all material changes to the offering document;
• the annual report for each financial year;
• a half-yearly report covering the first six months of the financial year;
• information regarding investment strategies; and
• reports regarding anti-money laundering practices.

Answer ... The governing body of an internally managed AIF must comprise at least four natural persons, of whom at least two must perform executive duties. The business of the AIF must be conducted by at least two natural persons who are of sufficiently good repute and possess sufficient knowledge and experience to perform their duties. The persons who effectively direct the business of the internally managed AIF or the persons effectively directing its external manager must not participate in the governing body of the depositary of the AIF. Furthermore, the portfolio and risk management functions must be performed by separate persons.

An internally managed AIFLNP must have a governing body comprised of at least three natural persons, of whom at least one must perform executive duties. The business of the AIFLNP must be conducted by at least two natural persons who are of sufficient good repute and have sufficient knowledge and experience to perform their duties. The persons who effectively direct the business of the internally managed AIF or the persons who effectively direct its external manager must not participate in the governing body of the depositary of the AIF.

Answer ... According to the AIF Law, the critical principle is that risk management functions and operating units, including portfolio management functions, be performed by separate persons. Persons who perform the risk management functions of an AIF must obtain CySEC certification, according to the Certification Directive issued by CySEC.

Internally managed AIFs and AIFLNPs must establish safety measures to prevent conflicts of interest and ensure the independent and effective performance of the risk management functions. Additionally, such AIFs and AIFLNPs must establish and enforce adequate risk management systems in order to monitor and manage all potential risks relating to their investment strategy or the strategy to which they are exposed. Risk management systems should be reviewed at least once a year and should be adjusted as and when necessary.

Internally managed AIFs and AIFLNPs must establish an appropriate, documented and regularly updated due diligence process while investing, which accords with their investment policy, investment objectives and risk profile.

These principles also apply where an AIF or RAIF is managed by an external manager, subject to the AIFM Law.