A new legislation entitled the “Law which provides for the Incorporation and Operation of Small Alternative Investment Fund Managers” (the “Law”) came into force on 3 July 2020 in Cyprus. The Law complements the Alternative Investment Fund Managers Law (AIFM Law), which has transposed the relevant EU Directive (AIFMD) in to national legislation. The AIFMD gives the flexibility for applying a lighter regulatory regime for the so called sub-threshold Alternative Investment Fund Managers (AIFMs).
The AIFM Law only applies to those AIFMs the assets under management of which exceed EUR100m. or EUR500m. where no leverage is used and the funds restrict redemption rights for a period of at least five years. AIFMs which do not exceed these thresholds are known as Sub-threshold AIFMs, also known as Small AIFMs, Mini AIFMs and Mini Managers.
Types of AIFs for which a Mini Manager can be appointed
Mini Managers can be appointed as external managers for the following AIFs:
- AIFs that are incorporated and operate in Cyprus
- AIFs that are incorporated and operate in another Member State or in a third country, provided that this is permitted by the law governing such AIFs
- AIFs with a Limited Number of Persons (AIFLNPs)
- Registered Alternative Investment Fund (RAIFs)
Main Characteristics of Mini Managers
Initial Capital
Mini Managers must have a minimum initial paid up capital of EUR50.000.
Where the value of the portfolio of managed AIFs exceeds EUR125.000.000, the Mini Manager must provide an additional amount of own funds which shall be equal to 0,02% of the amount by which the value of the portfolio of the Mini Manager exceeds EUR125.000.000.
Board of Directors
The Board of Directors of a Mini Manager needs to consist of at least 4 natural persons, two of whom must perform executive duties.
Offices
The head office and the registered office of a Mini Manager must be located in Cyprus.
Permitted Activities
- Portfolio management and risk management
- Management of AIFs, including the following:
- accounting services both to comply with legal and regulatory obligations as well as based on individual fund requirements
- dealing with investor inquiries
- portfolio valuation and pricing
- regulatory compliance monitoring
- maintenance of unit/shareholder register
- distribution of income
- unit/shares issues and redemptions
- contract settlements, including certificate dispatch
- record keeping
- Marketing
- Activities related to the assets of AIFs under management, such as facility management, real estate administration, advice and consulting on various matters such as capital structure, etc.
Licensing
A Mini Manager is allowed to manage AIFs only upon receiving authorization from the Cyprus Securities and Exchange Commission (CySEC), based on an application, which needs to include the following:
- information on the persons effectively conducting the business of the Mini Manager;
- identification of the shareholders;
- Business Plan and internal regulations setting out the organisational structure of the Mini Manager including information on how the latter intends to comply with its obligations;
- arrangements made for the delegation of functions, if applicable;
- the investment strategies, the risk profiles, the use of leverage and other characteristics of the AIFs it manages or intends to manage;
- information on where the master AIF is established if the AIF is a feeder AIF;
- information on the arrangements made for the appointment of the depositary – in case this is required by the applicable law governing the said AIF.
Transitional provisions for Cyprus Investment Firms (CIFs)
CIFs which received authorisation from CySEC for the management of AIFs prior to the entry in to force of the Law, are considered to be Mini Managers and may continue to provide services to that respect provided that within 9 months from the entry into force of the Law, they take all necessary measures to comply with its provisions.
Affected CIFs need to inform CySEC about the compliance measures taken or to be taken and submit a written confirmation by their Board of Directors for what concerns their compliance with the provisions of the Law.
In case of non-compliance within the set deadline of 9 months, the said CIFs will not be permitted to provide services as per the provisions of the Law.
Obligations
Ongoing obligations to which Mini Managers are subject to include the following:
- To submit correct and accurate information to CySEC.
- To employ an appropriate liquidity management system and adopt procedures enabling the Mini Manager to monitor the liquidity risk of the AIFs under management and to ensure that the liquidity profile of their investments complies with underlying obligations. It must also be ensured that for each AIF under management the investment strategy, the liquidity profile and the redemption policy are consistent.
- To ensure that the payment or collection of any remuneration or commission, or the provision or securing of any non-monetary benefit does not lead to a breach of its obligation to act in an honest and fair manner.
- To take reasonable steps to avoid conflicts of interests between the Mini-AIFM and any AIFs under management or between different AIFs under management.
- To act in the best interests of the AIFs or the investors of the AIFs they manage and taking into consideration the integrity of the market.
- To separate, both functionally and hierarchically the functions of risk management from the operating units, including the functions of portfolio management.
- To ensure that appropriate and consistent procedures are established so that a proper and independent valuation of assets of the AIFs under management can be performed.
- Marketing of units of AIFs under management is permitted only to professional and/or adequately informed investors in Cyprus. The Mini-AIFM may market units to professional and/or adequately informed investors in another EU Member State upon notification to CySEC.
- To take into consideration the nature of the AIFs under management and adopt appropriate internal procedures and arrangements as prescribed within the Law.
Delegation of functions
Delegation of certain functions is permitted under certain conditions, including the prior notification of CySEC.
