What is an AIF
Alternative Investment Funds (AIFs) are collective investment vehicles which allow investors to participate across a number of ‘alternative’ asset classes that were previously out of reach by traditional UCITS funds. Such asset classes include Hedge Funds, Private Equity, Venture Capital and Real Estate.
The introduction of the AIFMD regulation in the EU has brought these types of funds to the mainstream and today they have become a very popular investment option for a number of institutional, professional and eligible retail investors.
AIFs are governed by lighter and more flexible regulation, compared to UCITS, vis a vis their licencing process, investment restrictions and liquidity requirements yet they enjoy all the benefits of a UCITS in terms of investor protection and a cross-border marketing ‘passport’.
Moreover, AIFs may be set up as an umbrella AIF, i.e. an AIF with more than one investment compartment or sub-funds, each being subject to the provisions of the AIF Law as a separate AIF.
Even though an umbrella AIF is a single legal entity, the assets and liabilities of each sub-fund are fully segregated and each can follow entirely different investment strategies.
Advantages of a Cyprus AIF
- The application process is fairly simple and fast
- The set up and operation of an AIF is easy and cost efficient
- There are no restrictions concerning the type of investment
- Full transparency through mandatory and frequent reports to the Regulator and to Investors
- AIFs are supervised by a competent, accessible and business-friendly Regulator (CySEC)
- Exemption from tax on profits earned by the AIF from sale of shares or other instruments, as well as from dividends received by companies in which the AIF has invested
- Low corporate tax on annual profits for AIFs of corporate form.
- Exemption from tax on the amount invested to the AIF, as well as on the capital gains from the disposal of units/shares of the AIF
Domestic legislation allows for 3 types of AIFs, each with a different focus to address varying investor requirements and profiles:
- Can be addressed to professional, well-informed (semi-professional) and retail investors
- No restriction on number of investors
- Can be self-managed or appoint an external manager (AIFM, Investment Firm, UCITS manager or ‘mini-manager’)
- AIFs with AuMs exceeding certain thresholds (large AIFs) require AIFM licence
- Minimum AuMs of €500,000 (per sub-fund)
- No capital requirements if externally managed (obligation falls on manager)
- Capital requirement of €125,000 for ‘small’ self-managed AIFs or €300,000 for ‘large’ self-managed AIFs
- Requires a depositary
- Needs to be authorised directly by Regulator
Similar to AIFUNP, except:
- Cannot be addressed to retail investors
- Limit on number of investors of 50 natural persons
- Cannot be managed by an AIFM
- Cannot exceed ‘large AIF’ AuM thresholds
- Minimum AuMs of €250,000 (per sub-fund)
- Lower capital requirements of €50,000 for self-managed AIFs
- Requirement for Depositary may be waived under certain conditions related to limitations on size & type of assets and number of investors
Similar to AIFUNP, except:
- Cannot be addressed to retail investors
- Cannot be internally managed
- Consequently no capital requirements
- Does not require direct authorisation (relies on external manager’s licence)
- Most cost- and time-effective fund establishment option
*By virtue of section 125(3) of the Alternative Investment Funds Law of 2018 L.124(I), AIFMs are only authorised to provide delegated Portfolio Management services to AIFLNPs