Registered Alternative Investment Funds
Cyprus law provides for unregulated funds, known as Registered Alternative Investment Fund (RAIF).
The newly established Cyprus legislation that regulates Alternative Investment Funds was approved on the 10/07/18 and states that the RAIFs will not be regulated or licensed by the Cyprus Security and Exchange (CySEC). Instead of being regulated by CySEC, the RAIFs is overseen by a qualified and licensed Alternative Investment Fund Manager (AIFM). The AIFM not only supervises and manages the RAIF but also provides certain services which include compliance, risk management and internal compliance audit to name a few.
The new legislation was introduced with the intention to provide a cost-effective fund as well as limit the time that was needed until the fund could offer investment opportunities. China, the Middle East as well as European countries have shown an increased interest in RAIFs. RAIF will offer the below benefits:
- Transparency and increased investor protection through disclosure of information and circulation of reporting statements;
- “Business minded” regulator;
- Designed legislation to take into consideration new market realities and conditions;
- Network of professionals can ensure compliance with the legislation’s requirements;
- Lower cost than other EU fund jurisdictions; cost efficient to set up and maintain a Cyprus RAIF;
- The investor is relieved from concentrating all his/her funds in a single asset.
A. Key Features of a RAIF:
- 1. No licensing required – RAIFs do not need to be licensed/authorised by CySEC and thus they do not fall under the direct supervision of CySEC. However, the establishment of a RAIF will need to be notified to CySEC and be included in a CySEC RAIFs register.
- 2. RAIFs will be supervised by a licensed Alternative Investment Fund Manager (“AIFM”), which supervises the RAIF and provides certain mandatory services (risk management, compliance, internal compliance audit etc.).
- 3. No initial capital requirements – There are no minimum initial capital requirements for a RAIF, but minimum assets under management of at least EUR 500,000 or currency equivalent to be reached within the first 12 months of receiving authorization (may be extended to 24 months)
- 4. No investment restrictions – There are no investment restrictions for a RAIF, with the exception that RAIFs cannot set up as Fund of Funds, Money Market Funds or Loan Origination Funds
- 5. A RAIF can take all available legal forms and is allowed to invest in non-financial assets.
- 6. Unlimited number of Investors – A RAIF has no maximum number of investors May only be addressed to Professional/Well-informed investors
- 7. Possibility for creation of Multiple compartments– RAIFs may be set up as umbrella funds which have separate compartments treated as a separate legal entity. Thus, there is an option for umbrella structure with multiple investment compartments (‘sub-funds’), provided that this is mentioned in the RAIF’s regulatory documents.
- 8. Units of RAIFs may be listed
- 9. Requirement to appoint local Depositary
- 10. “Passporting” rights for fund distribution within the EU Appointment of local depository.
B. Application for RAIF Registration
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1. Application to CySEC is submitted by the External Manager for registration in CySEC’s registry within one (1) month from the RAIFs registration with the Registrar of Companies/the signing of the Rules of Incorporation in the case of a common fund, accompanied with the following information:
- Certificate of incorporation;
- Information regarding the investment strategy, the External Manager’s policy regarding the risk and leverage, and other characteristics of the RAIF in question
- RAIFs instruments of incorporation
- Depositary information
- External Auditor’s and Legal Advisor’s confirmations
- External Manager’s license;
- 2. CySEC within a period of one (1) month from the receipt of all required information/documentation verifies that the license of the Manager also covers the investment strategy of the RAIF
- 3. Once CySEC confirms that the concerned RAIF has been included in the special register, the RAIF may start to operate.
