The three available fund structures in Cyprus are the AIF for Unlimited Number of Persons (AIF), the AIF for Limited Number of Persons (AIFLNP) and the Registered AIF (RAIF).
Types of Investment Funds
The Alternative Investment Funds Law of 2018 provides for three types of investment funds in Cyprus as follows:
- Alternative Investment Fund with Unlimited Number of Persons (AIF)
- Alternative Investment Funds with Limited Number of Persons (AIFLNP)
- Registered Alternative Investment Fund (RAIF)
AIF - Alternative Investment Fund
Number of Investors: An AIF is available to an unlimited number of investors.
Type of Investors: The AIF can be promoted to any investor, encompassing retail investors.
Legal form: AIFs may be established as variable or fixed capital investment companies, common funds and limited partnerships.
Depositary: A single depository must be appointed for each AIF, which must be established locally.
Management: AIFs can be either internally or externally managed.
Capital Requirement: Initial capital for authorisation under the legislation is necessary only for self-managed AIFs, since they also act as the fund’s manager, which will be €125.000.
Minimum Capital Raising: Both externally and internally AIFs will have to raise capital of at least €500.000 during their first 12 months of operations.
Organisation Requirements: Board of Directors shall be comprised of at least 2 executive and 2 non-executive independent directors.
Investment Restrictions: AIFs are subject to the Categorisation Directive, which specifies their investment policy, depending on the category of investors to which they are addressed or marketed.
European Passport: Both Marketing (except retail investors) and Management European passport is available for AIFs.
Alternative Investment Funds for Unlimited Number of Persons (AIFs) are used for funds requiring to encompass retail investors in their capital raising strategies.
The availability of retail investors for AIFs commands higher degree of protection therefore these funds have restrictions under the Categorisation Directive of CySEC and should only be considered if it is absolutely necessary.
The availability of retail investors for AIFs commands higher degree of protection therefore these funds have restrictions under the Categorisation Directive of CySEC and should only be considered if it is absolutely necessary.
AIFLNP - Alternative Investment Fund with Limited Number of Persons
Number of Investors: An AIFLNP is available to 50 investors or less.
Type of Investors: An AIFLNP can be marketed only to professional or well-informed investors.
Legal Form: AIFLNPs, may be established as fixed or variable capital Investment companies and limited partnerships.
Management: AIFs can be either internally or externally managed.
Capital Requirement: An internally managed AIFLNP has a dual role (fund and fund manager) and therefore the legislation has introduced an initial capital requirement for internally managed AIFLNPs of €50.000.
Minimum Capital Raising: AIFLNPs must reach €250.000 within the first 12 months of their operation.
Depositary: A Depositary may not be appointed when (a) the total assets of the fund do not exceed €5 million, or (b) the number of unit-holders is limited to five, or (c) the number of unit-holders is limited to 25 and only 10% of the fund’s total assets are subject to custody, and each unit-holder has invested at least €500.000 in the fund.
Organisational Requirements: When the AIFLNP is self-managed, its Board of Directors shall be comprised of at least one executive and two non-executive directors.
Investment Restrictions: There are no investment restrictions on AIFLNPs.
European Passport: Not available for AIFLNPs.
AIFLNPs are usually used for local private label funds which do not require to raise money in Europe since they cannot utilise the European Marketing Passport for Funds.
Reverse Solicitation or National Private Placement Regimes are usually used to raise capital outside Cyprus for AIFLNPs however the practice should be exercised with caution.
RAIF - Registered Alternative Investment Fund
RAIFs will be registered in a Registry but will neither be authorized by CySEC. It will still be considered as a regulated AIF by virtue of the Law, offering new opportunities for a quick and cost-effective fund launch. Their supervision and monitoring will be performed by the AIF Manager (‘AIFM’), managing the RAIF.
Number of Investors: A RAIF is available to an unlimited number of investors.
Type of Investors: RAIFs can be marketed only to professional or well-informed investors.
Legal Form: RAIFs may be established as variable or fixed capital investment companies, common funds and limited partnerships.
Management: RAIFs may only be externally managed by an external manager.
Capital Requirement: There are no capital requirements for RAIFs.
Minimum Capital Raising: RAIFs will have to raise capital of at least €500.000 during their first 12 months of operations.
Depositary: A single depository must be appointed for each AIF, which must be established locally.
Organisational Requirements: There are no organisational requirements for RAIFs.
Investment Restrictions: There are no restrictions in its investment strategy, however the RAIF cannot be set up as Loan Origination, Fund of Funds or Money Market Funds.
European Passport: Both Marketing and Management european passport is available for RAIFs.
RAIFs are usually used as a speed to market solution for asset managers or as a private label fund for alternative strategies that are not open to the wide private investor.
RAIFs may be set up initially as a speed to market solution and then transformed into an AIF or AIFLNP while it is continuing its operation or capital raising.
Alternative Funds Characteristics
| Characteristic | AIF | AIFLNP | RAIF |
|---|---|---|---|
| Number of Investors | Unlimited | 50 | Unlimited |
| Type of Investors | All | Professional / Well Informed | Professional / Well Informed |
| Legal Form | All | Corporate / Partnership | All |
| Management | Self / External | Self / External | External |
| Capital Requirement | Self: 125.000 | Self: 50.000 | No Capital Requirement |
| Capital Raising Requirement | 500.000 | 250.000 | 500.000 |
| Depositary | Required | Required with 3 exceptions | Required |
| Organisation | Self: 2 Exec 2 Non Exec / AML | Self: 1 Exec 2 Non Exec / AML | No Org. Requirements |
| Investment Restrictions | YES | NO | No MMF / Loan Origination / FoF |
| European Passport | YES | NO | YES |
