Cyprus has long been hailed one of Europe’s fastest growing financial and services centres, leveraging its highly competitive regulatory framework, an abundance of qualified professionals, and its geostrategic location. However, it wasn’t until 2013 with the creation of the Cyprus Investment Funds Association (CIFA) that concrete steps were taken to tap into one of the fastest growing global financial segments – the investment funds industry. Angelos Gregoriades has not only presided the association from the get-to (on top of his role as chairman of KPMG Cyprus), he has been at the forefront of efforts to place Cyprus’ funds industry in the international limelight.
Established as the collective voice and reference point for the legal and professional entities in the Cypriot Fund Industry, CIFA represents Cyprus in both the local and the international arena.
“The Association was developed for this purpose: to help the development of the industry, to support the members of the association in going through a learning curve to learn the trade, and at the same time CIFA has the duty to support the legal framework that needed to be developed, as well as to support the promotion of (the) industry,” explains Gregoriades.
“The idea of promoting Cyprus as an alternative funds jurisdiction in this geographic area of Europe made sense” says Gregoriades with a smile, referring to the fact that Cyprus acts as a natural bridge between Europe, Asia, the Middle East and Africa, whilst also being in close proximity to one of the largest sources of investment in European private equity. “Investors, mainly who invest in private equity in Europe, are based in the Middle East,” notes Gregoriades.
This proximity, he explains, means that Cyprus is ideally poised to become a base for either fund managers who want to regularly visit high-profile investors and promote their products, or those who have invested in the region and want to easily supervise the evolution of their investments. The island nation is also prepared to play a key role in enabling the entry of new investors into Europe.
According to Gregoriades, this competitive edge was highlighted by EFAMA, the European Fund and Asset Management Association, which CIFA became a member of in 2016 – an important milestone in Cyprus’ quest to become a leading European fund centre. And yet, the greatest vote of confidence was provided earlier this year when EFAMA selected Cyprus as the location for its annual meeting, acknowledging its place as a key player.
“We had members from 28 countries as well as 62 corporates attending” states Gregoriades, “half of them had never been in Cyprus before. And this was very good, he adds “in getting people to know more about the jurisdiction and (its) proximity to markets that are of interest.”
While it may be true that the sector has plenty of room for growth, the jurisdiction’s notoriety is with no doubt on the rise. Since the establishment of CIFA in 2013, assets under management have increased from €2.1bn at the end of 2012 to €4.4bn in March, 2018, while the number of registered funds has risen from 74 to 123.
“Assets under management (…) have doubled,” says Gregoriades confidently, and to top things off “some of these investment funds are investing within Cyprus”.
A firm supporter of the need to enable alternative sources of financing in the economy, Gregoriades attributes the increase in the volume of assets under management to the close supervision and regulation of the sector, which he says “offers good security” to investors.
According to Gregoriades, one of shortfalls of the banking sector that was encountered during the crisis in 2013 was the lack of monitoring of investments undertaken by entrepreneurs. In response, the country has taken bold steps to transform what used to be a debt-driven economy into an investment-driven one, but the shift has not been easy. Alternative Investment Funds (AIFs) pose a promising alternative.
“The added value for such alternative investment funds (in) financing the economy” stresses Gregoriades “is that there is a continuous monitor of the investments made by the fund managers requiring the companies that benefitted from such an investment to produce quarterly accounts, cash flows, business plans, on a continuous basis.”
“The fund managers provide such comfort for the continuous monitor of such investments for the benefit, of course, of the investors, and of course at the same time for the benefit of the entrepreneurs” he adds.
CIFA has also played an important role in ensuring that Cyprus both upgrades and consolidates the regulatory regime applicable to the investment funds industry – which is similar to that of Luxembourg and Ireland – and offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and AIFs.
“Cyprus now is EU compliant in relation to all directives that relate to all the asset management activity” says Gregoriades confidently. It is in great part thanks to these efforts that the island-nation became one of the first EU member states to transpose the Alternative Investment Fund Managers Directive into national legislation, an important factor in attracting overseas investment.
A landmark move was made in July earlier this year when the Cypriot Parliament approved the long-awaited new AIF legislation enabling, for the first time, the establishment of Registered Alternative Investment Funds (RAIF) in the country.
“We were very pleased that the government approved the new legislation” says Gregoriades, “these specialised funds are registered by already authorised alternative investment fund managers and they don’t have to go as a first process through the Cyprus Securities Exchange Commission (the independent supervisory authority responsible for the overall supervision of the investments market).” Instead of a three to four-month registration process, these investments now take a mere two to three weeks. The result is a quicker turnaround at a substantially lower cost, which Gregoriades is understandably very pleased with.
Here is how it works: the fund must meet the definition of an Alternative Investment Fund (AIF), as is set out by the EU. The fund must raise capital from several investors with a view to invest it in accordance with a defined policy, and not require authorisation pursuant to Article 5 of the EU Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. RAIFs are externally managed by a regulated external manager (an AIFM), which are themselves subject to regulation and supervision by the respective regulatory body under which it is authorised. This means that funds are protected and safeguarded according to the strictest measures, along with the ability to market units of the RAIF to investors in other EU states via a simple notification procedure. RAIFs can take the form of a common fund, an investment company, or a limited liability partnership, and can be either a single fund or an umbrella type conglomerate with multiple components.
In sum, an RAIF is easy and fast to set up, has low incorporation costs, can be structured the same way as other regulated AIFs, and is a protected investment. And being part of the Eurozone means that there are exceptional possibilities for cross-border and global fund distribution for EU and non-EU firms, alike. It is a very flexible platform, and much stronger than leaving deposits in banks.
As for the future, Gregoriades sees promising opportunities for the Cypriot funds industry in the wake of Brexit, particularly in the case of a “hard Brexit”. While it is true that Cyprus’ reliance on British imports, could bring about challenges for the economy, once Britain exits the EU, Cyprus is poised to become an entry point to Europe for British-based businesses in search of a European domicile. A highly competitive corporate tax rate – 12.5% – and a double taxation treaty network that covers more than 60 countries, makes Cyprus an attractive alternative to (formerly) London-based and European-facing operations. And by contracting a Cyprus based company in a process called redomiciliation, British-based businesses would not have to relocate their current staff, all whilst still maintaining an EU compliant platform along with a European passport to market their funds in the EU.
“As you know Cyprus follows the UK common law (and) the tax rules are on the same basis” says Gregoriades “so a fund manager who moves out of London in to Cyprus will not have much of a change in terms of legal and tax framework”. British investment managers are taking heed: assets under management in Cyprus have tripled since 2013, totalling 3 billion euros last year, and funds registration have increased 18% each year since 2014.
Gregoriades presents a convincing case for the strengths of the Cypriot funds industry, and for the potential of the sector to drive growth in years to come. And yet, only five years have elapsed since the establishment of CIFA. As over 500 leading industry professionals from around the world gather this week in Cyprus for the Fourth International Funds Summit, what seems clear is that the global industry is starting to agree with Gregoriades on Cyprus’ value, and the results speak for themselves.