{"id":1213,"date":"2022-08-21T06:35:00","date_gmt":"2022-08-21T06:35:00","guid":{"rendered":"https:\/\/aspentrust.com\/?p=1213"},"modified":"2023-01-04T15:49:47","modified_gmt":"2023-01-04T15:49:47","slug":"a-guide-to-registered-alternative-investment-funds-in-cyprus","status":"publish","type":"post","link":"https:\/\/aspentrust.com\/a-guide-to-registered-alternative-investment-funds-in-cyprus\/","title":{"rendered":"A Guide to Registered Alternative Investment Funds in Cyprus"},"content":{"rendered":"\n

Setting up Alternative Investment Funds and Registered Alternative Investment Funds in Cyprus<\/strong> allow investors to conduct business through a fund without the daily management required of other company structures. This type of structure along with the favorable tax regime of Cyprus enables investors to raise more capital and High-Net-Worth-Individuals to financially benefit from this alternative method of investment.<\/p>\n\n\n\n

The Aspen Trust Group<\/a> details the legal framework of Alternative and Registered Alternative Investment Funds in Cyprus and the taxation policies that have made the jurisdiction a rising star among EU funds jurisdictions.<\/p>\n\n\n\n

The Business of Funds<\/h2>\n\n\n\n

Abraham van Ketwich<\/u><\/a>, an Amsterdam-based merchant, is often cited as the first person to professionally record an initiation of managed investment funds in 1774. It is believed that the Trust System was the idea to inspire King William I to launch close-ended investment companies in the Netherlands in 1822.<\/p>\n\n\n\n

In defining trusts, one needs to mention that they establish the relationship in which the settlor gives the trustee the right to hold assets on behalf of the beneficiary. In this relationship, there are three separate parties: the settlor, the trustee, and the beneficiary. They are created as means to protect, manage, and distribute the trustor\u2019s assets in an effort to provide legal protection and save time, money, and paperwork.<\/p>\n\n\n\n

Funds originated as a way to diversify investment opportunities and in order to increase the appeal of investments to lesser investors with limited capital, other jurisdictions began to establish their own fund-like trusts. Switzerland in 1849 and Scotland in the 1880s initiated the global funds’ wave and the concept soon found its way to Great Britain, France, and the United States by the 1890s.<\/p>\n\n\n\n

Both the Boston Personal Property Trust, 1893, and the Alexander Fund in Philadelphia, 1907, solidified the creation of the modern-day fund structure.<\/p>\n\n\n\n

With its rise in popularity, trusts and mutual funds have expanded to include Alternative Investment Funds. Cyprus is the latest jurisdiction to make significant legislation to boost incentives for the establishment of Alternative and Registered Alternative Investment Funds.<\/p>\n\n\n\n

The most recent of these is the Alternative Investment Funds Law 2018<\/a>, which introduced the provisions for establishing Registered Alternative Investment Funds in Cyprus, which are not regulated by the Cyprus Security and Exchange Commission, but supervised by a mandatory licensed Alternative Investment Fund Manager.<\/p>\n\n\n\n

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The goal of the new law is to provide more cost-conscious fund vehicles and to decrease the time until a fund may start providing investment opportunities.<\/p>\n\n\n\n

Setting Up Alternative Investment Funds in Cyprus<\/h2>\n\n\n\n

Cyprus<\/a> has a legal framework set up for three types of Alternative Investment Funds:<\/p>\n\n\n\n

\u2013 Alternative Investment Funds, with unlimited number of investors;<\/p>\n\n\n\n

\u2013 Alternative Investment Funds of Limited Number of Investors; and<\/p>\n\n\n\n

\u2013 Registered Alternative Investment Funds.<\/p>\n\n\n\n

Alternative Investment Funds<\/em><\/h3>\n\n\n\n

An Alternative Investment Fund may be founded and operated as either an open-ended or close-ended fund. Its legal form may be as a Variable Capital Investment Company, Fixed Capital Investment Company, Limited Partnership, or a Common fund.<\/p>\n\n\n\n

Moreover, Alternative Investment Funds may be managed internally or externally, but the assets of the fund must be entrusted to a depositary that has a registered office in Cyprus, an EU member country, or a third country. If the fund is managed externally, no initial capital is required. However, if the fund is self-managed, the initial capital requirements are set at 125,000 Euros or 300,000 Euros, depending on satisfying AIFMD (Managers Directive) conditions.<\/p>\n\n\n\n

Cyprus Alternative Investment Funds have no restrictions on the number of investors as long as the legal form allows it.<\/p>\n\n\n\n

These types of funds must also have a minimum value of Assets Under Management (AuM) of 500,000 Euros within 12 months.<\/p>\n\n\n\n

Alternative Investment Funds of Limited Number of Investors<\/em><\/h3>\n\n\n\n

Cyprus Alternative Investment Funds of Limited Number of Investors follow similar guidelines as Alternative Investment Funds but are limited to up to 50 investors. Its legal form may be as a Variable Capital Investment Company, Fixed Capital Investment Company, or Limited Partnership.<\/p>\n\n\n\n

If managed externally, there are also no initial capital requirements, but if self-managed, the capital requirements are 50,000 Euros.<\/p>\n\n\n\n

There are also no restrictions placed on investment strategy, whereas Alternative Investment Funds do apply some restrictions for liquidity and risk diversification.<\/p>\n\n\n\n

With this type of fund, the minimum AuM within 12 months is only 250,000 Euros.<\/p>\n\n\n\n

Registered Alternative Investment Funds<\/em><\/h3>\n\n\n\n

Registered Alternative Investment Funds in Cyprus may take the legal form of a Variable Capital Investment Company, Fixed Capital Investment Company, Limited Partnership, or a Common fund. The country does not require authorization but the fund must be registered to a RAIF register.<\/p>\n\n\n\n

There are a few restrictions to the investment strategy of this type of fund, such as the fund cannot pursue a Money Market policy or be a fund of funds.<\/p>\n\n\n\n

Further, the number of investors is unlimited and it must be externally managed, which also means that there are no initial capital requirements.<\/p>\n\n\n\n

The minimum AuM within 12 months is 500,000 Euros.<\/p>\n\n\n\n

\u200b\u200b2022 Amendments to RAIF and AIF Law<\/h2>\n\n\n\n

In January 2022, CySEC introduced a new directive known as Circular C484<\/a> pertaining to the external management affairs of RAIFs. Under the published directive, CySEC would begin to oversee assessment towards the authorization of External Managers of RAIFs. Any external managed AIFs would also be subject to assessment. Qualifying RAIFs would be deregistered from the RAIF Register and re-registered under the CySEC RAIF Register.<\/p>\n\n\n\n

Several components of the assessment, when applicable, include:<\/em><\/p>\n\n\n\n