RAIF: The latest addition to the Cyprus Fund Industry

Posted on 26 Sep 2018, by Christiana Constantinides

The Cyprus Fund Industry is currently undergoing a phase of continuous change.

After the Alternative Investment Funds Law of 2014, which modernized the funds regime in Cyprus, by appointing CySEC as the competent regulatory authority and creating a centralized point of reference for the rules regarding all aspects of AIFs, their operation and their management, the new Alternative Investment Funds Law now provides for the ability to set-up a new type of alternative investment fund, the “Registered Alternative Investment Fund” or RAIF.

The new Law, which has been given parliamentary approval on July 10 of 2018 and published by CySEC on the 31 of the same month, replacing the old law, sets out in the first paragraphs that the RAIF can be set up to be open or closed-ended, and similarly to a traditional AIF it can be structured as a common fund, a variable or fixed capital investment company or a limited partnership, while it is also allowed to operate as an “umbrella” RAIF, with more than one investment compartments, each one to be subject to the Law.

The novelty introduced by the new Law lies with the fact that these Funds, contrary to traditional AIFs, will not fall under the sphere of regulation of CySEC, and hence need not be licensed by the commission. As a first observation, this implies that the setting-up of a RAIF will be simpler and the compliance costs and obligations will be more lenient, something that is attractive to many investors.

In an attempt to mitigate the risk posed by the lack of supervision by CySEC, the Law includes a limitation that these Funds are intended for professionals and/or sufficiently experienced investors and contains an obligation for the Funds to explicitly clarify this, along with the fact that they have not received an operation license by CySEC, on their memorandum.

To fulfil the managerial, compliance and supervisory needs of a RAIF, the law stipulates that an Alternative Investment Fund Manager (“AIFM”) must be appointed to provide the necessary services essential for the functioning of the Fund. The Law allows for this AIFM to be either a Cyprus or EU licensed manager, and in exceptional instances, a non-EU manager.

The duties of the AIFM include setting up and maintaining an efficient governance regime for the proper operation of the Fund, procedures for the control and supervision of the Fund’s operations as well as ensuring that the Fund’s shares are only made available to professionals and/or sufficiently experienced investors as the law provides. He is also responsible to communicate to CySEC any proposed change in the Fund’s way of operation, such as changes in investment strategy, or the initiation of a liquidation procedure.

Although undeniably a significant addition in the Cyprus market, that lengthens the list of products available in our Fund industry, thus catering for a broader range of investor needs, the RAIF is still at a premature stage, with the Law only available in the Greek language for the time being and with significant details missing, which need to be filled by a Directive, to be prepared by CySEC in the upcoming months.