2023 CIFA Investment Funds Guide

16 CYPRUS INVESTMENT FUNDS 2023-24
Resilient and Poised for Growth
Even during the most unstable of times
following the pandemic, soaring inflation
and the wide-ranging effects of the
Ukraine war, the investment funds sector
in Cyprus has shown remarkable resilience
and has continued to develop across the
board. Traditionally, Europe’s cross-border
fund market has been firmly dominated
by Luxembourg and Ireland, but other
domiciles within the European region are
also successfully competing for business,
including Malta, Gibraltar, the Isle of Man
and increasingly Cyprus. In fact, Cyprus is
one the fastest growing European fund
jurisdiction by Net Asset Value (NAV) for
UCIs, AIFs and UCITS. In the first quarter
of 2023, Cyprus’ NAV reached €9.7 billion.
The increase in investor confidence is linked
to rising asset valuations and the strong
performance of retail investor instruments.
The steady growth in both assets and
in the number of fund structures licensed
and active in Cyprus have underlined the
strength and appeal of the domicile. Assets
under Management (AuM) have increased
substantially from €2.7 billion in 2016 to
€10.7 billion in the first quarter of 2023,
proving that the sector’s rapid growth has
captivated the global asset management
and investor community. To date, funds’
investments in the Cypriot economy have
exceeded €2.5 billion and are spread
across various sectors, such as in shipping
and maritime ventures, renewable energy
projects, the education and health sectors,
technology, and the real estate market.
Strong AIF Appeal
Cyprus offers both EUregulated
Undertakings of Collective
Investment in Transferable Securities
(UCITS) and Alternative Investment Funds
(AIFs). Although Cyprus
has secured some UCITS
business – including ones
promoted by international
heavyweight institutions
such as JP Morgan,
Schroder, Pictet and
Julius Baer – its focus has
been to specialise in the
structuring of alternative
assets in sectors where it
already has a strong global
presence such as shipping,
energy, real estate and
wealth management. A major coup for the
industry came recently, with organisations
like MUFG Investor Services and Global
Maritime Fund (GMF), which aims to
become the world’s largest maritime fund,
chose to base in Cyprus. Industry experts
have also noted a growing interest from
Indian, Israeli, and Japanese fund managers
to establish a structure in Cyprus.
The number of AIFs has seen consistent
growth and will continue to dominate the
Cypriot investment funds scene in the years
to come. Following the modernisation of
Cyprus’ fund framework there are now three
types of AIFs that can be set up in Cyprus.
In addition to the Alternative Investment
Fund of Unlimited Number of Investors
(AIFUNP), investments can be structured
in the form of an Alternative Investment
Fund of Limited Number of Investors
(AIFLNP), which is promoted to family
offices and high-net-worth individuals as
an alternative to a group holding company.
Then there is the Registered Alternative
Investment Fund (RAIF), which has become
a success story of its own. RAIFs, Cyprus’
version of Luxembourg’s popular Reserved
Alternative Investment Fund, have truly
taken off since the innovative vehicle’s
launch in 2018. RAIFs do not require
a licence from the industry regulator
CySEC but need to be registered with
the regulator by an already authorised
Alternative Investment Fund Manager.
The first RAIFs were launched in 2019, and
the number has rocketed since from 26
RAIFs in 2020, to 124 RAIFs operating out
of Cyprus by the first quarter of 2023.
Diverse Domicile
Cyprus is ideal for
regional players,
start-up funds,
alternative funds,
as well as larger
entities looking
to diversify into
new asset classes
Thus far fund sizes vary significantly
ranging from around €10 million to €1
billion, which goes to show the diversity
of fund business in Cyprus. Currently
Cyprus is ideal for regional
players, start-up funds,
alternative funds, as well
as larger entities looking
to diversify into new asset
classes with minimum
risk and cost. However,
fund professionals report
that they are seeing more
medium-sized funds
moving into Cyprus,
and they believe the
sector has significant
scope to grow. Currently
An effective financial system,
bolstered by robust safeguards,
enhances the availability of financial
services, providing a wide range
of financing options to economic
participants while promoting
investor protection. Expanding on
the positive momentum observed
in the Cyprus funds sector in recent
years, the Government and the
Ministry of Finance remain steadfast
in their commitment to nurturing
its continuous growth and ensuring
lasting prosperity. Within the
scope of this policy framework, the
Government, in close cooperation
with the Cyprus Securities and
Exchange Commission, is promoting
a series of legislative regulations
that aim to regulate the functioning
of the financial market, aligning
our framework and procedures to
European best practices. In this
context, legislative regulation
entitled ‘The Law of 2023 Regarding
the Formation and Operation of
Collective Investment Organization
Management Companies’ is currently
undergoing legal vetting. This law
aims to regulate the operation
of Cyprus Collective Investment
Organization Management
Companies, enhancing sector
specialisation and improving services
for fund managers and investors. In
light of these efforts to control the
financial market and enhance the
Cyprus investment funds sector,
the Government’s foremost goal is
to uphold Cyprus’ reputation as a
dependable financial centre and a
compelling choice for investment.
Makis Keravnos
Minister of Finance