alternative investment fund (aif) cyprus law / aifmd. presentation_moscow seminar... · established...

Cyprus Funds

Presented by:Andreas Yiasemides

Partner K. Treppides & CoDirector Treppides Fund Services

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CYPRUS AS BUSINESS DESTINATION FOR FUNDS

Fund specific attributes

Experience in Investment Funds and Asset Management sectors (ICIS law, CIFs)

Efficient, effective and approachable Regulator (The Cyprus Securities and Exchange Commission - CySEC)

CIFA observer of EFAMA

Cost effective jurisdiction with simple procedures for set-up, management and operation of funds

European passport for Funds and Fund Managers

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CYPRUS FUNDS SECTOR

Assets under Management: 3,2 billion Euro (June 2014)

Number of Funds: Over 100

UCITS: 3 (two single schemes and one umbrella-type with 14 sub-funds with 46,4 million of assets under management)

UCITS Management Companies: 2

AIFMs: 2

Custodian banks: 3

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CYPRUS INVESTMENT FUNDS ASSOCIATION (CIFA)

CIFA is the Association of professionals and organizations which are involved in the Investment Funds Sector in Cyprus.

Established in February 2013 with the mission to:

• Help its members capitalize on industry trends

• Shape regulation

• Enhance professionalism, integrity and quality

• Promote the Cyprus Investment Funds Industry

Close cooperation with the Government, the Regulator and Industry Associations and Professional Bodies

Steps to become a national member of widely recognized and respected international bodies

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CYPRUS INVESTMENT FUNDS ASSOCIATION (CIFA)

CIFA enlists King Wood Mallesons (KWM) to promote Cyprus investment funds.

KWM conducted a comprehensive review of the Cypriot investment funds framework, including corporate tax arrangements and registration laws, in order to enhance Cyprus’ position as an international jurisdiction for the domiciliation and management of funds.

KWM will work with CIFA to promote Cyprus as a gateway to Europe for regional fund managers, particularly in Asia.

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AIFs – Framework

The Alternative Investment Fund LawN.131(I) 2014 came into force on the 27th ofJuly 2014.

The Cyprus Securities and ExchangeCommission (CySEC) is the regulatoryauthority responsible for the overseeing ofAlternative Investment Funds.

The content of this slide forms part of the presentation/report as a whole, its validity shall not be severed from the rest of this document andTreppides Fund Services Ltd accepts no liability for any loss or damage suffered by any person as a result of placing any reliance on the contents ofthis slide or the presentation as whole.

An AIF can take the following legal forms:

Fixed Capital Investment Company (‘FCIC’)

Variable Capital Investment Company (‘VCIC’)

Limited Partnership (‘LP’) , and

Common Fund (‘CF’)

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Legal form of AIFS

General Characteristics:

Separated Legal Entity with Form of a LimitedLiability Company

Variable or Fixed CapitalManaged either externally or internally (under

conditions)Under AIF and Companies Law In the case of an AIF/AIFM, the company is also

under the AIFM Law, which prevails against theabove Laws

Registered office located in Cyprus

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Fixed/Variable Capital Investment Company (‘FCIC/VCIC’)

General Characteristics Separate Legal Entity with Form of a Limited PartnershipManaged by General Partner Under AIF and Limited Partnership Law Registered office located in Cyprus

General PartnerManagement and representation of the partnership Responsible for all the debts and responsibilities of the

partnership Sole representative of the Fund and partners Can act as an external manager

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Limited Partnership (‘LP’)

General Characteristics The fund’s portfolio is handled mandatory by an

External Manager External Manager is the sole representative of the

Fund and Unit holdersNo separate legal personality, attached to the External

Manager Reliable only for the actions related to it, no legal

obligation in relation to the External Manager’s otheractions

Is licensed to work as a mutual fund according to theLaw

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Common Fund (‘CF’)

• Alternative Investment Fund with UnlimitedNumber of Persons:

May be marketed either to professional and/orwell-informed or retail investors Have investor shares which are freely transferable May be listed, and in the case of AIF with the legalstructure of a “VCIC” or “FCIC” and if marketed toRetail investors, may be traded Are subject to minimum capital requirementsequal to EUR 125.000 or EUR 300.000 in the case ofan AIF/AIFM Are subject to certain investment restrictions forthe purpose of risk spreading and ensuring liquidity

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Types of AIFS

• Alternative Investment Fund with LimitedNumber of Persons:

May not exceed the total number of 75 investors

May be marketed to professional and/or well-informed investors

Are not externally managed by an AIFM authorisedmanager and/or their assets under management do notexceed the AIFMD thresholds, being (i) EUR 100mm(incl. leverage) or (ii) EUR 500mm

Have investor shares which are freely transferableonly if their transfer does not result in the AIF havingmore than 75 investors

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Types of AIFS

INVESTORS

AIF FUND

FUND DEPOSITARY

FUND ADMINISTRATION

AUDITOR

INVESTMENT COMMITTEE

FUND BOARD OF

DIRECTORS

SPV 1 SPV 3SPV 2

INVESTMENT 1 EU

INVESTMENT 1 NON-EU

INVESTMENT 2 EU

INVESTMENT 2 NON-EU

INVESTMENT 3 EU

INVESTMENT 3 NON-EU

DIRECTINVESTMENT

Typical Structure

The Cyprus AIF

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Fund manager

Three classifications of investors:

(i) Professional Investor A Professional Client, as such term is defined in the MiFID

(i) Well-informed Investor An Investor that is not a Professional Client and meets the following two

requirements:i. Confirms in writing that he/she is a qualified investor and that he/she

is aware of the risks involved with an investment in the relevant AIF;and

ii. (1) Investment made in AIF is at least EUR 125.000 OR(2) Expertise, experience and knowledge in evaluating an investmentopportunity properly, have been certified by a licensed bank/creditinstitution, an authorised investment firm or an authorisedManagement Company

(ii) Retail Investor An investor which does not meet the requirements above.

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Investor Classification

Flexibility: Any asset can be included in the investment strategy of theAIF (under certain conditions)

Transparency: Annual audited and half yearly reports to be sent to theCySEC and the investors (contain financial statements, information onborrowing, portfolio information, NAV)

Tax Incentives: Cyprus AIF benefit from significant tax incentives /Establishment for taxation purposes can very difficulty be challenged

Regulation: EU directives / business friendly jurisdiction (no onerousreporting requirements)

Low set-up and operational costs: Easy and cost efficient to set upand maintain Cyprus funds.

Five Key Benefits

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The Cyprus AIF

No subscription tax on the net assets of the Fund 12,5% flat corporation tax on annual net profits earned worldwide Effective 12,5% tax on interest received The following income is exempted from tax:

• Profits from the sale of shares and other instruments• Dividends received• Capital gains arising from sale of immovable property located outside

Cyprus• Capital gains arising from the disposal of shares/units by the holders

A network of Double Tax treaties in place with more than 50 countries worldwide

Possibility of exemption from VAT

Tax incentives for Fund Managers 50% exemption of income earned for a ten year period from the date of first

employment in Cyprus, if salary is over EUR 100.000

Tax Incentives

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The Cyprus AIF

Depositary Administrator Auditor Investment Manager

Types of Professionals

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Professionals involved

• In the case of an Alternative Investment Fund with Unlimited Number of Persons, a Variable Capital Company and Fixed Capital Company can be managed either internally (self-managed) or externally (appoint an external manager). However it is mandatory for a Common Fund to have an external manager. A Limited Partnership’s external manager is the General Partner.

An external manager must fulfill the following licensing requirements:

• if coming from an EU Member State, he/she will need to be one of the following:

Alternative Investment Fund Manager;

Undertaking Collective Investment Transferable Securities (UCITS) Management Company;

Cyprus Investment Firm;

• if coming from a third country, he/she will need to comply with the Alternative Investment Fund Manager Directive rules on third country undertakings.

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Management of Alternative Investment Fund

• In the case of an AIF with Limited Number of Persons, a Variable Capital Company and Fixed Capital Company can be managed either internally (self-managed) or externally (appoint an external manager). However it is mandatory for an Limited Partnership’ to have an external manager.

The licensing requirements for an external manager depend on the investment objectives:

• if the Alternative Investment Fund will invest in financial instruments, then:

if established in an EU Member State, he/she will need to be one of the following:

Undertaking Collective Investment Transferable Securities (UCITS) Management Company; or

Cyprus Investment Firm; or

if established in a third country, he/she will need to grant permission for managing the specific Alternative Investment Fund and have adequate regulation and supervision in its home state; or

• if the Alternative Investment Fund will invest exclusively in other types of assets (eg. real estate, shipping, energy, etc.), the externally appointed manager may be a company incorporated solely for the purpose of managing the specific Alternative Investment Fundwhose suitability is deemed by the Cyprus Securities and Exchange Commission.

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Management of Alternative Investment

Fund

• A depositary must be appointed which has a registered office in the Republic or in the EU or a third country with the condition that CySEC has a written agreement of cooperation with that country

• Alternative Investment Fund with Limited Number of Persons is allowed not to appoint a depositary if: Assets do not exceed 5.000.000 euro If the incorporation documents or partnership

agreement restrict the number of shareholders to 5 persons

Assets are not held under custody (e.g real estate)

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Depositary


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Depositary Duties



Cash Monitoring: The AIF depositary shall in general ensure that the AIF’s cash flows are properly monitored and shall, in particular ensure that:

(a) all payments made by or on behalf of investors upon the subscription of units of an AIF have been received ,

(b) all cash of the AIF has been booked in cash accounts opened in the name of the AIF

Segregation of Cash: Where the cash accounts are opened in the name of the depositary acting on behalf of the AIF, no cash of the entity referred to in point (b) above and none of the depositary’s own cash shall be booked on such accounts.

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Depositary Duties



Asset Safekeeping: The asset of the AIF or the (External Manager) acting on behalf of the AIF shall be entrusted to the depositary for safe-keeping

The depositary shall verify the ownership of the AIF or the (External Manager) acting on behalf of the AIF of such assets and shall maintain a record of those assets for which it is satisfied that the AIF or the (External Manager) acting on behalf of the AIF holds the ownership of such assets

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Depositary Duties



Compliance: In addition to the tasks referred to in points (1) to (3), the depositary shall:

(a) ensure that the sale, issue, re-purchase, redemption and cancellation of units of the AIF are carried out in accordance with the applicable national law and the AIF rules or instruments of incorporation

(b) ensure that the value of the units or shares of the AIF is calculated in accordance with the applicable national law, the AIF rules or instruments of incorporation and the procedures laid down in the AIFM law;

It will usually provide in respect of the Fund:

Accounting Calculation of the Net Asset Value (NAV) Maintenance of the Share Register Performance of procedures required for transfer andredemption of units Reporting to the Regulator and Investors KYC procedures Reconciliation of depositary account Compliance with legislation and Fund provisions.

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Administrator


• Must be appointed at the incorporation of the scheme.

• The auditor, who must be a Cypriot based audit firm,needs to be approved by the CySEC.

• Its duties include: Annual audit of the financial statements based onIFRS Review of the activities and the compliance with therelevant Cyprus laws Carrying out of specific reporting duties for theCySEC.

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Auditor


Treppides Fund Services

Part of K. Treppides & Co Group

Member of Cyprus Investment Fund Association (CIFA) and regulated bythe Institute of Certified Public Accountants of Cyprus (ICPAC)

Our current portfolio comprises the following:

Cyprus Funds

Other jurisdictions funds such as BVI and Bahamas

More than 30 funds and over EUR 1.250.000.000 of Assets underAdministration (AUA)

Treppides Fund Services Limited undertook the establishment of theseFunds from licencing to Administration and day to day Funds’ requests

Our Company holds a Professional Indemnity Insurance to cover potentialclaims in respect of or in connections to our services

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Our Services

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Fund Setup and Consultation Services Advice and guidance on the choice of legal form, structure and

Fund characteristics

Assistance with incorporation/formation of the Fund

Domiciliary Services

Licensing Support services for AIF Funds

Preparation and Submission of the application and all the relevant documents needed to CySEC

Our Services

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Fund Setup and Consultation Services (continued) Drafting of the Offering Memorandum and all the relevant

documents to complete the application process

Assistance with drafting all the legal documents including the Memorandum & Articles of Association

Full corporate & domiciliary services for entities used by Funds to invest

Treasury and cash/liquidity management

Liaison services with the Fund auditors, investment manager, custodian/depositary, regulator, prime broker and other Fund participants

Our Services

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Fund Administration Services

Investor Subscription, redemption, contributions and withdrawals management and maintenance of the Shareholder Register

Monitoring shareholder investment restrictions Investor AML/KYC Compliance FATCA Compliance Investor and regulator Reporting and communication Investment Manager reporting and communication in respect of

investor matters Corporate Actions and dividends Disclosure of information services, holding statements and services to

the participants of the Provident Fund Email communication with the participants and investors of the Fund

Our Services

30The content of this slide forms part of the presentation/report as a whole, its validity shall not be severed from the rest of this document and Treppides FundServices Ltd accepts no liability for any loss or damage suffered by any person as a result of placing any reliance on the contents of this slide or the presentationas whole.

Middle Office Services

Trade Capture and recording of trades in the accounting records of the Fund

Interaction with Prime Broker and Brokers

Interaction with Depositary and Custodian

Interaction with Regulator (where applicable)

Cash and liquidity Management

Portfolio position and cash reconciliations

Bank Account Opening and management

Our Services


Valuation Services

Calculation of NAV as prescribed in the Fund Constitutional and Offering Documents

Fee and expenses calculations and allocations

Fund and Investor P&L allocations for complex structures

Processing of corporate actions and allocations of results of profit or loss

Tax computation of any tax liabilities or assets

Our Services


Fund Accounting and Treasury Services

Maintenance of the Fund Accounting Ledger

Reconciliation of cash and investment positions with the Depositary, Custodian and Broker

Preparation of financial statements, including Profit & Loss and Balance Sheet

Arranging payments of Fund invoices

Liaising and assisting with Fund’s audit

Our Services


Fund Compliance Services

Investment restrictions monitoring as per the investment policies of the fund

Ongoing monitoring of investors

Assistance with Regulatory reporting where applicable

Liaising with Fund’s legal counsel and Directors on compliance matters

Tax Compliance Services for the Fund and its investors

Investor KYC & AML

Technical Resources – Software


Prospero Fund Management Software Developed by Sage SA A complete, ready-to-use solution that allows the user to

manage and administer unlimited number of funds and unit trusts

Automates all operations: Corporate actions Shareholder recordkeeping Fee accruals

It ensures compliance with rules and regulations by enforcing due diligence through configurable pre-trade and post-trade checks



Prospero Fund Management Software (continued)Prospero supports complete fund administration and its main administrative activities are the following: Calculation of the Net asset value including the calculation of the

funds income and expense accruals Preparation of semi-annual and annual reports Maintenance of the fund's financial books and records Payment of the funds expenses Reconciliation of daily and monthly Broker Statement Settlement of daily Trades, assuring that the proper dividend and

interest are received, updating price of securities of client. Calculation and payment of dividends and distributions Direct Updates of Security prices through Bloomberg Interface

http://en.wikipedia.org/wiki/Net_asset_value


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Prospero Fund Management Software (continued)

The software covers the capture of the following asset classes:

Prospero Fund functional coverage matrix

Cash Funds DCDs Loans IRS Forex

Structured Derivatives New Issues IPOs Stocks Bonds

CDs FRNs T-Bills Convertibles Commodities Private Equity

FundsHedge Funds

Islamic products Real Estate ArtworkDirect

Investments


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Bloomberg Terminal Developed by Bloomberg L.P., which enables access to

the Bloomberg Professional service An integrated platform that streams together:

price data financials news trading data

to more than 250,000 customers worldwide. Through this service professionals and businesses can monitor and

analyze real-time financial market data and place trades on an electronic trading platform.

Passporting

Access to the EU Investor Market

More transparency through harmonization and disclosure, hence

increased investor protection

Expected to enhance the marketing potential of AIF

“Business Minded” Regulator

Network of professionals can ensure AIF is always in compliance with

the Directive and other legal requirements

Lower cost than other EU jurisdictions

Strong legal framework in Cyprus

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BENEFITS OF FUND PRESENCE IN CYPRUS

Fiduserve has created an Alternative Investment Fund under the relevant provisions of the legislation in Cyprus. The AIF has taken the form of a Limited Partnership and has been established with the ability to create several sub‐funds. The fund itself and all the main participants of the Fund (General Partner, Investment Manager, Auditor, Custodian, Fund Administrator) are regulated by various authorities in Cyprus, including the Cyprus Securities and Exchange Commission and the Institute of Certified Public Accountants of Cyprus.

A client can restructure an existing corporate structure by becoming a Limited Partner (Investor) in a separate and exclusive Sub Fund, created by exchanging assets for Participation Interests in the Sub Fund, instead of investing in cash. The Net Asset Value of the Sub Fund is calculated frequently and the Limited Partner’s investment in the Fund is known and communicated to the Investor at pre‐agreed intervals.

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CFC Possible solution

The active management of the Sub Fund is the responsibility of the General Partner which is a regulated entity controlled by Fiduserve. Certain management function of the General Partner can be delegated to other investment professionals (e.g. a wealth management team already involved with an Investor) but the overall responsibility and control lies with the General Partner in Cyprus.

A Limited Partner of a Sub Fund does not by Law have the power to take investment or other decisions relating to the Sub Fund or influence the Investment process in any way. The only decision is to enter or exit the Fund in accordance with the provisions of the Fund’s Offering Documents.

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CFC Possible solution

THANK YOU

The content of this slide forms part of the presentation/report as a whole, its validity shall not be severed from the rest of this document andK.Treppides & Co Ltd accepts no liability for any loss or damage suffered by any person as a result of placing any reliance on the contents of this slideor the presentation as whole.