Investment Fund

On 31 July 2018, the highly anticipated Alternative Investment Funds Law 2018 (New AIF Law) came into force, repealing the pre-existing regime. Among its key innovations, the New AIF Law introduces the Registered Alternative Investment Fund (RAIF). The RAIF vehicle now sits alongside the existing range of AIF products available in Cyprus. RAIFs are specifically relevant to professional and ‘well-informed’ investors and will significantly streamline the establishment process. This update outlines key aspects of the Cyprus RAIF:

RAIF Set-Up and Distribution

The introduction of Registered Alternative Investment Funds in Cyprus is regarded as a significant development portraying and confirming the jurisdiction’s desire to remain at the forefront of regulatory advancements governing the fund industry in Europe. Importantly, the fund set up process in Cyprus is now significantly expedited, due mainly to the fact that  RAIFs are not subject to direct licensing or authorisation processes by the regulator, the Cyprus Securities and Exchange Commission (CySEC). All RAIFs are required to be externally managed by an authorised Alternative Investment Fund Manager (AIFM). AIFMs in Cyprus are regulated by CySEC under the Alternative Investment Fund Managers Law 2013 which implements the Alternative Investment Fund Managers Directive 2011/61/EU.

This means that Cypriot RAIFs will benefit from the pan-EU passporting regime contained in the AIFMD. Under AIFMD, a marketing passport is not granted to the fund product itself, but rather to the AIFM. As a consequence marketing RAIFs across Europe can be significantly streamlined when compared to non-EU jurisdictions as the manager may rely on cross-border passporting arrangements to access all 31 EEA jurisdictions. There is no need to rely on private placement regimes.

Advantages of the Cyprus RAIF

Under the New AIF Law:

• RAIFs are not subject to a direct authorisation and licensing procedures but to a registration process with CySEC.
• CySEC needs to be notified only about the setup of a RAIF with a mandatory suite of documents submitted to CySEC that are outlined in subsequent sections of this note . To this effect, CySEC maintains a special register for RAIFs, and includes approved RAIFs in this register.
• There are no minimum capital requirements in respect of setting up a RAIF in Cyprus.
• A RAIF may be open-ended or closed-ended; it may be organised in any legal form available under Cypriot law, which currently includes companies (variable and fixed capital), limited partnerships and common funds (similar to unit trusts).
• The composition of a RAIF may consist of an unlimited number of investors. This is in contrast to the pre-existing ‘AIF for Limited Number of Persons’ (AIF LNP) which has been limited to 75 investors historically.
• RAIFs may be structured in the form of an umbrella fund, maintaining a number of legally segregated sub-funds or multiple investment compartments (similar to segregated portfolio companies or protected cell vehicles).
• There are no significantly rigid investment restrictions in respect of RAIFs. The only caveat to this is that fund of funds, money market funds or loan origination funds are subject to special requirements.
• The assets under management of a RAIF are subject to no limitation.

Key requirements for a RAIF

RAIFs are not subject to direct ongoing monitoring by CySEC. They must be externally managed by an authorized AIFM that has its office in an EU member state and is fully compliant with AIFMD . It is for the AIFM to ensure the general supervision and compliance in accordance with its own regulatory regime.

Setting up an AIFM is not a prerequisite and third-party AIFMs (independent management companies, or ManCos) are available, which can potentially offer a turnkey solution instead of setting up a proprietary AIFM.

RAIFs established as limited partnerships may appoint as managers UCITS management companies or a Cyprus investment firms (CIFs) authorised under MIFID II, instead of AIFMs. In these situations the RAIF would need to be close-ended and invest a minimum of 70 per cent of its funds in illiquid assets.

All RAIFs must appoint a depository, which may be a credit institution (typically  a bank) a CIF or other EU MiFID firm. The depositary must have its registered office in the European Economic Area or in a third country provided that CySEC has signed a Memorandum of Understanding for Cooperation and Exchange of Information with the competent authorities of that third country.

RAIFs are also required to have an Auditor and Fund Administrator.

The Cyprus RAIF provides investor protection through the requirement to appoint an authorised and regulated AIFM that is responsible for ensuring AIFMD compliance (in practical terms, the regulator oversees the RAIF through oversight of the AIFM). It further benefits from a licensed depositary that is required to act independently and in the best interests of investors by performing oversight, cash-flow monitoring and safekeeping of assets duties.

Registering a RAIF with CySEC and How Corpera Ltd can assist?

Corpera Ltd will act as the Promoter of the RAIF application working with the External Manager of the RAIF,as the applicant, andshall within one month from either,

(a) the date of the incorporation/registration of the RAIF with the Registrar of Companies if the RAIF takes the form of an investment company or a Limited Partnership or

(b) the date of the drafting of the RAIFs regulations, if it takes the form of a Common Fund, apply for the registration of the RAIF in the Register of RAIFs maintained by CySEC by submitting the following documents and/or information:

1. Application Form 124-00-01;
2. Certificate of incorporation/registration of the RAIF (as and where applicable);
3. Information as to the investment strategies and the external manager’s policy as regards the use of leverage, the risk profile and other characteristics of the RAIF;
4. The memorandum and articles of association, partnership agreement or regulation of the RAIF (as appropriate);
5. Information on the arrangements made for the appointment of a Depositary;
6. The Offering Memorandum of the RAIF;
7. In case the External Manager originates from a Member State other than the Republic or a third country, the relevant authorisation for the management of AIFs (not being restrictive to the management of an AIF of the Republic) and (where applicable) prior compliance with the AIFMD notification procedure;
8. Confirmations by the external auditor and legal advisor of the RAIF;
9. Confirmation by the promoter of the application.

Within one month of receipt of a complete application and after CySEC verifies whether the authorization of the external manager also covers the management of the particular RAIF and its investment strategy and policy, CySEC shall insert the name of the RAIF in the RAIF Registry.