14.07.2022
In recent years, Cyprus has significantly improved its foundation legislation in order to position itself as a flexible and cost-effective jurisdiction for foundations and fund managers in the European Union.
The success of the Registered Alternative Investment Fund or the so-called RAIF is a step in the right direction and the jurisdiction continues to work hard to further enhance the reputation of the sector both domestically and internationally.
Cyprus can position itself as a regional fund center and cost-effective investment platform in the EU, relying on its strength as a common law jurisdiction with an extensive network of tax treaties spanning over 60 countries. Moreover, Cyprus is in a position to offer fund managers and promoters cost-effective and substantive compliant solutions to meet the increasingly demanding, complex and evolving legal and regulatory dynamics of the European funds industry, as shown in the November 2021 AIFMD survey by the European Commission. and subsequent legislative proposals. Brexit also means that the UK is no longer the logical choice for a cross-border European fund management company, as individual 27 EU member states seek to capitalize on it.
With the growth of the RAIF product in Cyprus, there has been a demand for alternative investment fund managers, which are necessary for the management of RAIF. While there are benefits to setting up your own AIFM, it is not a requirement and third party AIFMs (so-called Independent Management Companies or Third Party ManCos) are available that can potentially offer a turnkey solution instead of building your own AIFM. This development also coincided with the fact that self-managed investment funds or self-managed investment companies (so-called SMICs) became less popular. SMICs have traditionally been popular and cost effective as the fund’s Board of Directors was responsible for all functions, but in practice most functions (investment management, fund management, etc.) have been outsourced on a contractual basis.
Institutional investors are increasingly accustomed to a third party AIFM governance model that offers convenience in terms of governance, including that a third party AIFM is responsible, among other things, for the operations and oversight of the Fund, including ongoing areas of particular regulatory focus. authorities, such as liquidity risk management . Looking at case studies in the local Cyprus market, CYREIT AIF Variable Capital Investment Company Plc, which in terms of assets under management is arguably the largest Cyprus-focused alternative property investment fund in Cyprus with a portfolio of 21 commercial properties and has successfully raised institutional capital at the international and local levels, historically was SMIC before in 2020 was converted to a third party AIFM model. In this now well-established example, there is a local team of recognized industry professionals on site managing part of the real estate portfolio from start to finish, while a third-party AIFM retains responsibility for the day-to-day management and oversight of the Fund. The model is also cost-effective, given the increasing focus on fees by regulators, the so-called fund pricing. The FCA in the UK, for example, has introduced rules requiring UK fund managers to assess the value their funds bring to investors and publish a summary of those assessments annually . t so -called valuation of funds. The FCA in the UK, for example, has introduced rules requiring UK fund managers to assess the value their funds bring to investors and publish a summary of those assessments annually . t so -called valuation of funds. The FCA in the UK, for example, has introduced rules requiring UK fund managers to assess the value their funds bring to investors and to publish a summary of those assessments annually.
The above example also aligns well with broader industry themes, such as increased regulatory and tax pressure on fund management functions to be performed in the same location as funds and SPVs, and the OECD BEP’s increased focus on fund management activities requiring material Fund management activities must be carried out in the same place where the profit
withdrawn in order to combat tax evasion. In addition, the FATF’s global focus on combating money laundering requires enhanced local oversight of AML/KYC functions in the Fund’s jurisdiction, which this model of fund management satisfies. The model is also currently well suited to meet the criteria of the Anti-Tax Avoidance Directive III (ATAD 3), which remains in draft form.
Robe rt Strit – external _ manager fund in CYREIT AIF Variable Capital Investment Company Plc.
