Alternative Investment Fund (AIF) License

Secqoia and its associates offer a complete package of fund formation, licensing, fund management, administration and depositary services.

What is an Alternative Investment Fund (AIF)?

The term “alternative investment fund” (“AIF”) refers to any vehicle established for the purpose of raising capital from a number of different investors with an aim to invest such funds into assets in accordance with a specific investment strategy as clearly defined in the Information Memorandum, for the benefit of investors (“unitholders”). Usually, AIFs are addressed to professional and/or well-informed investors but in some cases an AIF can also be made available to retail investors.

Similarly, an “undertaking for collective investment in transferable securities” (“UCITS”) is similar to an AIF in that it is a collective investment vehicle. A UCITS, however, will invest more specifically into “more traditional” liquid financial assets such as bonds, shares and money market instruments and its units are intended for sale to retail investors. In contrast, an AIF will generally be defined as a fund that does not satisfy the criteria for being regulated as UCITS. AIF examples include hedge funds, private equity funds, real estate funds, funds formed to invest in art, rare coins, cryptocurrencies etc.

A professional investor is a person who meets at least two of the below criteria:

• Has carried out transactions of significant size and of an average frequency of 10 per quarter, during the previous four quarters,
• The size of client’s portfolio exceeds 500,000 EUR, either in cash or in financial instruments,
• Works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

A well-informed investor is a person who invests in the fund at least 125,000 EUR or is already classified as well-informed investor by a credit institution, a UCITS management company or an Investment Firm (IF). It is further considered necessary for the investor to have the appropriate experience and knowledge to evaluate the appropriateness of the investments of the fund. Thus, the investor shall confirm in writing that he/she is aware of all risks related to the proposed investment.

Available legal forms for the establishment of an AIF

• Common Fund (CF): A pool of assets expressed in units. The unitholders are co-owners of each of the assets of the pool and they are liable up to the amount of their contribution. The common fund does not have legal personality as the unitholders are represented by an external manager who exercises portfolio management among other duties.
• Limited liability Partnership (LLP): An LLP which has as its sole purpose the investment of its own assets by the General Partner (who acts as a fund manager) for the benefit of its partners.
• Investment Company with Fixed or Variable Capital (ICFC or ICVC respectively): A company limited by shares, with its sole purpose the investment of the company’s assets for the benefit of its shareholders and with its registered office in the Republic. In the case of ICVCs, the procedure followed for the increase or decrease of capital is specified in the instruments of incorporation. The assets of the company can be managed by an internal or external manager.

AIFs have the flexibility to operate under:

1. A Single Scheme with one investment compartment, or
2. An Umbrella Scheme with multiple investment compartments (sub-funds) where each compartment acts as a separate fund with the below benefits:
   • each sub-fund can issue units corresponding to its own assets and the value of the units may vary only with respect to those assets;
   • each sub-fund is liable only for its own obligations towards unitholders;
   • CySEC may revoke the authorization of one sub-fund without revoking the authorization of the other sub-funds;
   • each sub-fund can be dissolved or liquidated separately from other sub-funds; and,
   • a sub-fund is able to invest in another sub-fund subject to the following conditions:
     • invest up to 35% of its assets in another sub-fund (“target sub-fund”) of the same fund;
     • the target sub-fund shall not invest in units of this sub-fund;
     • voting rights shall be suspended during the period of mutual participation;
     • the value of units is not included twice in the calculation of the net asset value of the fund; and,
     • there are no additional charges of management fees, redemption or repurchase fees, marketing expenses or any other remuneration related to the investment of a fund’s compartment to another compartment of the same fund.

Types of AIFs and their key features

The below table summarizes the key characteristics of each AIF type:

• AIFs with unlimited number of persons (AIF)
• AIFs with limited number of persons (AIFLNP)
• Registered AIFs (RAIF)

Area	AIF	AIFLNP	RAIF
License Requirements	YES	YES	YES
Competent Authority	CySEC	CySEC	CySEC
Limitation on Number of Investors	NO	Fifty (50) with Look-Through Provisions	NO
Available Structures	Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIV), Limited Partnership (LP), Common Fund (CF)	Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIV), Limited Partnership (LP)	Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIV), Common Fund (CF), Limited Partnership (LP)
More than one investment compartment (“umbrella structure”)	Possible for all structures	Possible for all structures	Possible for all structures
Investment Restrictions	May apply if the collective investment scheme is addressed to retail investors	No, as it is addressed to well-informed and/or professional investors	No, as it is addressed to well-informed and/or professional investors
Minimum AUM	500k Euro within the first 12 months (possible extension to 24 months)	250k Euro within the first 12 months (possible extension to 24 months)	500k Euro within the first 12 months (possible extension to 24 months)
Minimum Share Capital	For all Self-Managed Funds 125k Euro	For all Self-Managed Funds 50k Euro	Zero
Assets Under Management (AUM)	No restriction if externally managed. Otherwise, AIF can hold assets under the threshold of 1. EUR 100 Million including assets acquired through use of leverage, or 2. EUR 500 Million where no leverage is employed and the unitholders have no redemption rights for 5 years	No restriction if externally managed. Otherwise, AIF can hold assets under the threshold of; 1. EUR 100 Million including assets acquired through use of leverage, or 2. EUR 500 Million where no leverage is employed and the unitholders have no redemption rights for 5 years	No restriction
Requirement for External Manager	Can be self-managed*	Can be self-managed*	YES
Directors	Fit and Proper	Fit and Proper	Fit and Proper
Depositary Requirements	Based in Cyprus, EU or third country that has cooperation agreement with Cyprus. When it is managed by AIFM shall be located in Cyprus	Based in Cyprus, EU or third country that has cooperation agreement with Cyprus; certain exemptions apply**	Based in Cyprus except for LPs managed by MiFID entity
Reporting	YES	YES	YES
EU Passporting	YES	NO, must secure such license individually from each Member State	YES

*An AIF may be managed by its board of directors (only if it is formed as a variable capital investment company) assuming (i) that the assets of its portfolio, including any assets acquired through use of leverage, in total, do not exceed EUR 100,000,000 (or currency equivalent), or (ii) the assets of its portfolio, where the AIF does not employ leverage and its unitholders have no redemption rights exercisable during a period of five years following the date of initial investment in the AIF, do not exceed EUR 500,000,000 (or currency equivalent).

**Exemptions from depositary requirement

• The Total assets under management of all investment compartments is less than €5.000.000, or
• The total number of investors for all investment compartments is restricted to 5 persons, or
• The assets eligible to custody do not exceed the limit of 10% of the total value of the AIFLNP’s portfolio, and

• 1. the total number of investors for all investment compartments is restricted to 25 persons and
  2. each of the investors invests at least 500.000 in the AIFLNP

Secqoia and its CPT can help you acquire your AIF license in Cyprus, appoint an external investment manager (in case the fund is not internally managed), appoint a fund administrator, appoint directors and sign an agreement with a licensed depositary.

Post-authorization

Secqoia is committed to providing quality post-authorization services to your newly authorized AIF, relevant to your ongoing regulatory obligations:

• Outsourced Regulatory Compliance Services
• Compliance and Money Laundering Compliance Support Services
• CETE (Compliance Enquiries Through Emails)
• Due diligence of specific processes and procedures
• Preparation and documentation of internal procedures and processes
• Specialized Support in a variety of areas (such as specialized advising, drafting of legal documentation, providing assistance on resolving ad-hoc operational issues etc.)

Despite the fact that our prices are, most probably, the best in the industry, we are committed to provide you with a beneficial counteroffer in case you receive a better offer from any other firm.

Regarding the granting of an authorization to operate an Alternative Investment Fund in/through the Republic of Cyprus, please feel free to contact us.