While the genesis of the Cyprus Funds Industry originates back in 1997 with the introduction of the International Collective Investment Schemes (ICIS), the industry experienced its real growth over the last 5 years with the transposition of the latest European Regulatory Frameworks (UCITS Directive, AIFMD and MiFID II) into national legislation and the development of an ecosystem that can support a truly modern European Fund Hive.
The Cyprus Fund ecosystem, comprising of a prudent, yet business-oriented regulator (the Cyprus Securities and Exchange Commission), international-calibre professional service providers and administrators, distinguished law firms and UCITSD/AIFMD-compliant Depositaries, makes for a solid foundation on which the industry can grow and create an attractive environment for the establishment of Funds, Fund Management Companies and Fund Servicing Companies. This is supported by the tangible evidence seen in the level of Assets under Management currently standing at around EUR6,3 billion, representing an astonishing 132% growth relative to 2016.
Apart from the very high level of infrastructure brought in by the aforementioned counterparties and the skilled and experienced human resource talent pool, there are a several other compelling features to consider about Cyprus: (i) its very competitive cost for establishing and running a fund vehicle and/or management company, (ii) its Common Law-based legal system, and (iii) its very efficient, transparent and effective tax system (both at the level of the Fund/Management Company and the individual level (employees and investors)).
In periods of prolonged low interest rates, or volatile markets, such as the last 8 years, cost optimisation is key for Fund Managers in order to deliver performance to their clients and continue their raising capital efforts. Furthermore, Cyprus's geographic location places it at the crossroads of Europe, Africa and Asia with regular flight connections, multicultural business etiquette and a stable political regime.
The Cyprus Funds framework is able to accommodate a complete suite of fund types and legal forms that enable to cater for different asset classes, different types of investors and different investment objectives and strategies. From UCITS (Undertaking in Collective Investments for Transferrable Securities) for the very liquid, retail-investor oriented financial instrument funds to highly illiquid AIFs (Alternative Investment Funds) tailored to specific well-informed and/or professional investors, and everything in between are in place to facilitate the needs of financiers and investor demands. Investment opportunities in real estate, shipping, infrastructure, NPLs, Oil & Gas, Renewable Energy Sources, Hedge Funds, Start-ups and Private Equity projects can all be accommodated through the right type of Cyprus Fund vehicle to market the product and raise capital to finance such projects in an EU-compliant manner.
The legal forms of Common Fund (contractual arrangement), Limited Partnership and Investment Company (with Fixed or Variable Capital) allow interested parties to tailor the structure in accordance to their precise needs and personal tax circumstances. Depending on the legal form and the level of AuMs as well as on the use of leverage and/or having a lock-up period, a fund vehicle can be setup as self-managed or appoint an external authorised manager. The broad types of EU authorised external fund managers are the UCITS Management Companies, the Alternative Investment Fund Managers ("AIFMs") and the MiFID Firms ("CIFs"). In cases of a smaller set of investors, limited up to 50 natural persons, and AUMs up to EUR100m (or equivalent in any other currency) including the use of leverage or EUR500m without using leverage and having a minimum 5-year lock-up period, the national legislation permits the establishment of a more flexible vehicle, known as the Alternative Investment Fund for Limited Number of Persons ("AIFLNP"), which does not have any investment restrictions or borrowing constraints and in certain cases permits not having to appoint a Depositary. Lastly, the latest amendment of the AIF law in July 2018, introduced the Registered AIF ("RAIF") which enables a very quick setup as it does not have to go through an authorisation process by the regulator but requires the appointment of an eligible authorised external manager.
The emphasis on strong corporate governance and qualifications on the persons holding key functions or performing certain duties provides for the required level of investor protection and provides the foundations for investor confidence in subscribing to their desired investment strategy and manager with more contained operational risks. At the same time, the ability to use the latest technological advancements brought in by Industrial 4.0 mean that one can optimise the operating environment of investment management firms through the use of Artificial Intelligence ("AI") and Cognitive methods, Machine Learning and Robotic Process Automation (RPA) to automate repetitive processes, reduce the costs and minimise the risk of human errors on those specific tasks, whilst focusing on generating alpha using a combination of experienced managers and intelligent robo-advisors.
On a fast-changing and continuously evolving regulatory landscape, "static adequacy" is not sufficient. Investment managers continue to do business in a complex marketplace and navigate an ever-changing global landscape where regulation and demand for transparency and investor protection are dominant. Whether you are in private equity, hedge funds or mutual funds, Deloitte Funds Advisory services can help you rise to the challenges and capitalise on opportunities. We provide specialised knowledge and fresh insights into the wide range of operational, technological and regulatory issues surrounding the industry today. The range of issues fund managers and their boards need to address has risen significantly as the investment management industry faces an unprecedented wave of regulatory change. Meeting these demands requires not only to keep up to date with regulatory changes, but to decipher complex new rules and prioritise actions in the face of often competing regulatory demands. Moreover, whilst regulatory and legislative compliance are undoubtedly critical for the successful operation of a Fund, identifying solutions that facilitate growth in assets under management requires having advisors with credible industry and market expertise that are able to optimise across all kinds of constraints. Our practice is able to assist clients with a wide range of services including, but not limited to the following:
- Identifying and ranking the possible options based on their objectives and priorities,
- Analyse the requirements and costs/tax considerations of each option,
- Advise on and facilitate permissible outsourcing arrangements,
- Prepare the licensing application file and liaise with the regulator,
- Assist with any Fund listings,
- Provide cross-border distribution and passporting advisory services,
- Transaction advisory and valuation services,
- Regulatory reporting,
- RegTech and FinTech lab sessions,
- External or Internal Audit services,
- Outsourced Risk Management and Regulatory Compliance Advisory Support services,
- Tax Compliance, Tax rulings, Tax structuring and VAT services,
- Human Capital Services,
- Training courses for Continuing Professional Development accreditation,
- Relocation and Immigration/Citizenship services,
- Legal Services (via our associate firm Deloitte Legal).
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.