Frequently asked Questions

For the purposes of this document refer to the below definitions:

AIF - Alternative Investment Fund

AIF Law - The Alternative Investment Funds Law of 2018 L.124(I) of 2018

AIFM Law - The Alternative Investments Fund Managers Law (consolidated up to L.157(I)/2021)

AIFLNP - AIFs with Limited Number of Persons

CBC - Central Bank of Cyprus

CySEC - Cyprus Securities and Exchange Commission

Fund - AIF

External Manager- Alternative Investment Fund Manager (AIFM) or any other management company eligible to manage AIFs as per the relevant Law

TA - Transfer Agency or Transfer Agent
 

How long does a Fund have to raise its minimum initial capital?

According to the provisions of the AIF Law, an AIF must within 12 months from the date of its authorisation, raise at least €500.000 (€250.000 for AIFLNPs) worth of capital from investors either in the form of cash or in-specie contributions. It's important to clarify that in cases where the AIF is an umbrella scheme thus having the ability to establish and operate multiple investment compartments, these minimum capital requirements apply to each individual investment compartment established. The €500.000 (€250.000 for AIFLNPs) is the absolute minimum amount determined by the Law, however, Fund Managers and/or initiators have the option to specify any amount above the aforesaid minimums, whereby such decision is usually based on their envisioned investment needs or break-even points. It is also worth noting that, upon written request from the External Manager and/or Fund initiator, the CySEC may approve, at its absolute discretion, the extension of this period to an additional 12 months.

Considering the recent volatility of global financial markets as well as other unprecedented geopolitical and economic events, having the flexibility to request for an extension of your capital raising period to 24 months is very advantageous. 

Can a Fund Manager accept Well-informed Investors who contribute less than the minimum €125,000?

Typically the answer is no, as per the definition within the AIF Law, which states that an investor classified as well-informed should initially invest at least €125,000. However, an External Manager, at its absolute discretion, can authorize the onboarding of a well informed investor who is contributing less than €125,000 subject to certain conditions as prescribed in the Law.

In practice, a Fund that will expect to have investors contributing less than €125,000 and cannot qualify as well-informed may consider the option of professional investors or the alternative of being authorized to accept retail investors.

What is a Funds’ NAV Computation frequency?

            A Fund's NAV computation frequency can be determined by the External Manager and/or Fund initiator (i.e. daily, monthly, quarterly, annual etc.). The NAV computation frequency is usually determined based on the Fund type of structure and envisioned strategies to be pursued (i.e. liquidity and volatility of invested assets). For example, Funds investing in illiquid and non-volatile assets (i.e. Real Estate, Ship vessels etc.) usually choose a less frequent NAV computation frequency. On the other hand, a Fund investing in liquid financial instruments (i.e. listed securities) may choose to adopt a monthly NAV computation frequency in order to be in a position to onboard investors and track the Fund’s performance on a more frequent basis.

It is also worth noting, that the External Managers and/or Fund initiator have the option to also compute a Fund’s NAV on an ad-hoc basis so as to be in a position to onboard new investors before the predetermined NAV computation dates and thus exploit any recently identified investment opportunities.

As a minimum, a Fund shall compute its NAV on an annual basis.

What are the Fund’s and External Manager’s regulatory reporting requirements?

A Fund/External Manager has quite a few regulatory reporting requirements towards the local Regulators being the CySEC and the Central Bank of Cyprus. If the Fund is internally managed, then the requirements apply at the Fund level, while if externally managed by a regulated External Management entity, the majority of the regulatory reporting requirements fall on the External Manager itself.

Amongst others, a Fund, whether active or not, needs to prepare and submit to the Regulator its annual audited financial statements and interim unaudited management accounts. The Fund’s External Manager is also responsible for preparing and submitting an Annual Report for each of the Funds under its management in accordance with article 29 of the AIFM Law. In practice and amongst others, the Annual Report has to contain the Fund’s audited financial results thus is usually accompanied with the Fund’s annual audited financial statements.

Some additional regulatory reporting requirements are the (a) AML monthly prevention statements, (b) Quarterly Statistical Reports, (c) Risk Based Supervision Framework, AIFMD/XML Reporting, AML Annual Report etc.

The only Regulatory Report which falls on the Fund’s individual investment compartments’ level and applies only upon activation, is the CBC’ statistical reports which can be either monthly or quarterly, whereby the reporting frequency is based on the individual investment compartments’ size/assets under management.

How is an investor onboarded in a Fund and what is the role of the Fund Administrator acting as a Transfer Agent (TA)?

The usual starting point is the expression of an investor’s interest to invest in a specific Fund/Investment Compartment. In doing so, the Fund’s External Manager and/or its Fund Administrator provides to the Investor for completion a Subscription Application Package. Upon completion of this package, the Investor shall also provide its related KYC and AML documentation so as for an effective investor screening to take place. The aforesaid are reviewed by the appointed TA (usually being the Fund’s Administrator) to ensure the completeness, accuracy and adequacy of the provided investor information. Prior to officially accepting the investor for onboarding in the Fund, the Fund’s AML Officer and the External Manager’s Board of Directors shall review the provided information and grant their approval for onboarding respectively.

The depositary will also be provided with the aforesaid Investor information so as to obtain the necessary comfort needed to accept the investor’s transfer of funds or in-specie asset in the Fund and to overall satisfy its duties as these are prescribed in the AIF Law (i.e. safe-keeping, cash monitoring and oversight). 

It is also worth noting that in case a potential investor wishes to subscribe in the Fund by means of an in-specie contribution of an asset other than cash, an independent valuer shall be engaged by the Fund’s External Manager to provide a valuation of that in-specie asset. The value of the in-specie asset contributed will determine the number of investment shares the Investor will be allotted upon entry. 

In practice, the Transfer Agency function is usually outsourced by the Fund’s External Manager to the Fund’s independent third party Administrator. In doing so, the Fund Administrator undertakes the whole Investors’ onboarding process as well as the facilitation of other Investor transactions such as redemptions, transfers and conversions. The rationale for this is to (a) free up some of the External Manager’s capacity and allow it to focus on its core functions being portfolio and risk management, (b) Fund Administrator’s sophisticated onboarding softwares and Investor screening engines for undertaking background checks, (c) extra layer of procedural controls ensuring adherence to AML Laws and Directives.

By Christina Kouali, Manager, PwC Cyprus