CYPRUS FOR FUNDS AND FUND MANAGEMENT COMPANIES. Andreas Hadjioannou Fiduserve Management Ltd Moscow, 12 December 2012

Transcription

1 CYPRUS FOR FUNDS AND FUND MANAGEMENT COMPANIES Andreas Hadjioannou Fiduserve Management Ltd Moscow, 12 December 2012

2 i. Investment Funds The EU Framework Current framework in the EU: a) categorized into UCITS (EU product, fully harmonized); and b) Non-UCITS, Alternative Funds (national legislation in place, not fully harmonized) ii. Fund Management: 100% fully harmonized: UCITS management regulated by the UCITS Directive, AIF management regulated by the AIFMD iii. The general Asset Management Licensing status in the EU: Collective Portfolio Management UCITS Management Companies (2009/65/EC) AIF Managers (2011/61/EC) Individual Portfolio Management Investment Firms (2004/39/EC) Private Banking (2006/48/EC)

3 The Cyprus Framework UCITS- General Harmonized EU investment product (open ended, retail design, heavily regulated, must be liquid and riskdiversifying) Introduced for the first time in 1985 but only UCITS IV finally achieved the initial objectives (mainly Passporting) Cyprus has transposed the UCITS IV legislation (78(I)/2012 which has opened up the possibilities for the Redomiciliation of UCITS and the relocation of FM companies to Cyprus.

4 The Cyprus Framework UCITS Types of Funds available in Cyprus Contractual Form (Common Fund) Mass of assets, pooled No separate legal personality Management is vested with the Management Company, acting on behalf of the Funds Similar (mirroring) Trust Arrangements Investors subscribe for units

5 The Cyprus Framework UCITS Types of Funds available in Cyprus Statutory Form (Variable Capital Investment Company) Body Corporate, set up as a PUBLIC Company separate legal personality Managed by the Board of Directors which are ultimately responsible and liable Investment Management can be internal or external Company Law provisions apply unless specific issues provided for in the UCITS Law Investors subscribe for shares. Note: investor subscriptions/redemptions are not processed under Companies Law

6 The Cyprus Framework UCITS Service providers and participants UCITS Investors Management Company Depositary Administrator Sub- Custodian

7 The Cyprus Framework ICIS General Current Fund Vehicles for Alternative Investments ICIS Law of 1999, allowing 4 types of Funds Only Private Funds allowed by CB ICIS Law currently under revision to introduce provisions of the AIFMD Currently CB regulates (it s a registration procedure, not a full licensing procedure as will be the case with CySec under the new framework)

8 The Cyprus Framework ICIS Some statistics Currently there are 94 Funds recognized by the CB >80% are IVCC, close to 20% are IILP More than 50% have been recognized in the last three years so there is a growing interest in Cyprus ICIS Approximately 25% of ICIS Managers/promoters originate from Russia/CIS Investment focus is primarily Private Equity, Energy and Real estate Strong regional focus in Russia, CIS, Eastern Europe and Asia (through the use of the DTT treaties Cyprus has in place)

9 The Cyprus Framework AIFMD and the new Framework AIFMD must be transposed into member state legislation by July Cyprus is expected to introduce the new legislation in Q Year after transposition date, all AIFM within scope will need to be authorized In addition to the transposition of the AIFMD, the ICIS Law will need to be amended to take into account certain AIFMD provisions The new ICIS Law is currently redrafted. It is expected to be passed in Q New ICIS Law will allow among other things Compartmentalization (Umbrella Funds) and Master Feeder structures

10 The AIFMD AIFMD- General Seeks to establish a harmonized and stringent regulatory framework throughout the EU for AIFMs who wish to manage AIFs and market in the EU. Goal is to increase investor protection similar to what is offered by UCITS Directive that regulates Fund Managers, not the Funds directly. Why? Directed to Hedge Funds and Private Equity Funds Initially met with uproar from the Alternatives Industry because of many restrictions, severe protectionism, cost burdening and unreflective of the market practices.

11 The AIFMD AIFMD- Some Important Dates July 2013, each member state must transpose the directive into local legislation 1 year after transposition date, AIFM within scope need to get authorization EU AIFM managing EU AIFs will benefit from Passporting immediately Non EU AIFM managing and promoting AIFs in the EU or EU AIF managing non EU AIFs will not enjoy passport until July So it is obvious that the overall preference of the EU is for EU AIFM to manage EU Funds. There is also a shift in the EU towards jurisdictions which encourage substance of the AIFM, and not merely presence. Cyprus is one of the countries that its regulators require/encourage substance.

12 The AIFMD AIFMD- Applicability and grandfathering provisions AIFM with AUM in excess of 100mln with leverage or 500mln for unleveraged funds with lock up period of 5 years EU AIFM below thresholds are exempted from authorization- only reporting provisions apply. Opt-in possible however to benefit from Passporting Also exempted are closed-ended Funds which are fully invested on transposition date or funds which were fully subscribed in 2011 and will close in 2016 Directive does not apply also to Family Offices (no formal definition yet), holding companies, institutions for Occupational retirement provisions, supranational organizations, national central banks and public bodies, employee schemes, Securitization Special Purpose Vehicles (SPVs)

13 The AIFMD AIFMD- some further characteristics AIFM should monitor AUM continuously. When thresholds exceeded, authorization must be sought within 30 days! Delegation is possible, usually for the following functions: portfolio management, risk management, administration But caution not to create Letter-box entity And overall supervision still the responsibility of the AIFM Depositary is essential (increased costs expected) Independent valuation of assets is essential.

14 The AIFMD AIFMD- some implications for the participants Administrators Depositaries Operational and organizational requirements, indemnity insurance, technology Increased Liability, regulator s extended arm Management Companies Authorization, Governance, delegation, risk management, liquidity management Remuneration disclosures, reporting to IM Prime Brokers

15 Passporting The AIFMD AIFMD- Benefits and Costs Licensing Costs Access to the whole EU Monitoring/Compliance Investor market costs More transparency through EU Presence costs (can vary harmonization and depending on chosen disclosure; hence increased investor protection jurisdiction) Increased Depositary Costs Expected to enhance the Increased reporting/risk marketing potential of AIF management costs

16 The AIFMD AIFMD- How does it affect you? First Scenario: Question: Are you an EU AIF managing an AIF (EU and non- EU)? If YES, can you rely on any of the exemptions or grandfathering provisions? If NO, then you must seek authorization. Passporting is available immediately for EU Funds. For non-eu funds, available from 2015 if the AIF jurisdiction has a cooperation agreement with the EU, equivalent AML regulations and OECD tax arrangements. Until 2015, you can use Private Placement Rules.

17 AIFMD- How does it affect you? Second Scenario: The AIFMD Question: Are you a non-eu AIF managing an EU AIF? If YES, can you rely on any of the exemptions or grandfathering provisions? If NO, then you must seek authorization in 2015 under Third Country Passport. Until 2015, you can rely on Private Placement rules but from July 2013 you must comply with AIFMD s requirements in respect of transparency and portfolio disclosures Passporting is available only from 2015 after authorization.

18 The AIFMD AIFMD- How does it affect you? Third Scenario: Question: Are you a non-eu AIF managing non-eu AIF but seek to market in the EU to EU Investors? If YES, can you rely on any of the exemptions or grandfathering provisions? If NO, then you can only rely on Private Placement rules and seek authorization by each member state you are marketing in (and appoint local representative). Then, subject to certain conditions, you can seek authorization in 2015 under Third Country Passport. Note: Private Placement schemes will be permitted until 2018.

19 The AIFMD AIFMD- How does it affect you? So Essentially: EU AIFM above thresholds and not exempted, are within scope of the AIFMD and must seek authorization. Non-EU AIFM managing EU Funds will be allowed to seek authorization (and benefit from Passporting) after Non-EU AIFM managing non-eu Funds but marketing in Europe will have to consider opting in to the Directive or restructuring (establishing AIFM entity in the EU and seek authorization)

20 Authorization process The AIFMD Once authorized, the AIFM must comply with the conditions at all times When managing an AIF, the AIFM must at least perform the portfolio management and risk management functions Application should comprise of information on the Manager (persons conducting the management, identity and background information on the owners, business plan and organizational structure, remuneration policies and practices, delegation arrangements) and on each AIF it intends to manage (investment strategies, type of funds, leverage policy, risk profiles, master/feeder disclosures, legal structure information, depositary arrangements, investor disclosure rules)

21 Authorization process The AIFMD Capital requirements: 125,000 EUR for external AIFM + possible additional own funds depending on AUM (0.02% of AUM >250 mln) with 10mln maximum, and 300,000 EUR (if AIF=AIFM) Substance requirements (office in Member state) Response to be given within 3 months from complete file submission Cross referencing for existing UCITS management companies possible (i.e. information submitted in the process of authorization of a UCITS management company does not have to be re-submitted) Must be used within 12 months

22 The AIFMD AIFMD- where does Cyprus fit in? Directive Characteristic/requirement Directive regulates AIFM. Establishment of Fund still down to member state law Passporting Passporting (2) Cyprus strongpoint Strong legal framework in Cyprus and strong links with Russia Competitive advantages over other jurisdictions both for Funds and Fund Management Companies Even if Fund Management Company is setup in other Member state, Cyprus can still be used as the jurisdiction of the Fund. This is for large FM companies which have already established management companies in the EU (mainly the UK).

23 The AIFMD AIFMD- where does Cyprus fit in? Directive Characteristic/requirement The Directive places increased transparency via licensing and reporting. Licensing in particular is expected to increase popularity of AIFs The Directive places a lot of responsibility on the FM even when delegating functions Cyprus strongpoint Business minded regulator Network of professionals can ensure AIFM is always in compliance with the Directive s requirements

24 The AIFMD Comparison of jurisdictions- UCITS Available legal forms Umbrella structure? Cyprus Luxembourg Malta Ireland CF-VCIC CF- SICAV/SICAF CCF-Unit Trust CCF-SICAV/ ICC YES YES YES YES Listing? Possible Possible Possible Possible Minimum net assets/capital requirements 200,000 EUR with Man. Company or 300,000 if self managed 1,250,000 with Man. Company to be reached within 6 months, 300,000 EUR to reach 1,250,000 if self managed 300,000 EUR 125,000 with Man. Company, 300,000 if self managed

25 The AIFMD Comparison of jurisdictions- UCITS NAV calculations Cyprus Luxembourg Malta Ireland Daily At least twice a month CCF-Unit Trust CCF-SICAV/ ICC Promoter? Not required Required Required Required Administrator Authorization Director residency for Man. Company Delegation possible Cyprus tax residency concept applies YES YES YES 3 directors; 1 from Luxembourg 2 Irish resident directors 1 Malta resident director

26 The AIFMD Comparison of jurisdictions- AIF Available legal forms Cyprus Luxembourg Malta Ireland Under Current Framework: IVCC IFCC IUT IILP Only Private Funds (can include Professional Investors) UCIs SICAV SICAF Common Fund SIFs Specialized Investment Funds- can take all forms listed above for UCIs CISs SICAV INVCO Unit Trust LP Inc Cell Co. PIFs Professional Investor Fundscan take all forms listed above for CISs except last form Variable Capital Company; Unit Trust; Common Contractual Fund; Investment LP Available for Retain Funds, PIFs and QIFs

27 The AIFMD Comparison of jurisdictions- AIF Setup and Licensing time frame Tax environment Cyprus Luxembourg Malta Ireland 4-6 Weeks from complete file submission 1. Tax exempt on dividends received, Profit on sale of securities, Capital gains on property sold abroad 2-3 months 1. Tax exempt on income and capital gains 2. No withholding tax for distributions to investors 1 month from initial application 1. Tax exempt on income and capital gains if assets in Malta <15% 2. No withholding tax for distributions to investors 5-6 weeks, fast track for QIFs 1. Tax exempt on income and capital gains 2. No withholding tax for distributions to investors

28 The AIFMD Comparison of jurisdictions- AIF Tax environment Cyprus Luxembourg Malta Ireland 2. No 3. Annual withholding tax subscription tax 3. No for distributions (for UCIs equal 3. No subscription to non residents to 0.05% of NAV subscription tax tax and for SIFs 3. No equal to 0.01 of subscription tax NAV) Capital requirements No Minimum capital required EUR 1,250,000 net assets to be reached within 6 months (12 months for SIFs) EUR 1200 EUR 100,000 for PIFs and QIFs

29 The AIFMD Comparison of jurisdictions- AIF Redomiciliation Cyprus Luxembourg Malta Ireland Permitted, Permitted, under under conditions conditions Permitted, under conditions Permitted, under conditions

30 Umbrella Funds Fund Structures One single entity with several sub-funds (cost reduction) Sub funds legally distinct from one another (legal protection) Umbrella Fund (each sub Fund separate class of Shares, separate portfolio) Sub Fund1 (for institutional investors) Sub Fund 2 (with geographically determined investment policy) Sub Fund 3 (higher management fees)

31 Fund Structures Master Feeder structures Feeder essentially acts as distribution channel and uses master s expertise Feeders invests at least 15% into the master and 15% in assets predetermined by Law A Master does not feed and must have at least one feeder Structure requires prior approval from authority Investor contributions Feeder Fund invests at least 85% to And up to 15% in other assets Master Fund

32 Parallel Funds Fund Structures Cayman Management Company Cayman Fund Cyprus Management Company Cyprus Fund

33 Conclusions Large Institutional investors are increasingly using Hedge Funds to invest; significant number come from the EU So scope of AIFMD is likely to affect everyone in different ways. Your structure should be analyzed and action should be taken Cost-Benefit analysis to determine whether benefits from full authorization under AIFMD outweighs costs Cyprus deserves another look, irrespective of current financial situation, for a number of reasons: Tax optimization for Funds and Fund Management Companies; Relocation of professionals is a more attractive proposition; Strong network of professionals covering all functions of funds participants

34 Conclusions Flexibility ; Still has the strongest ties with Russia DTT Network extensive Cost effective Business friendly regulator The Funds Industry can become the next success story for Cyprus to cement its position as a complete global financial centre.

35 THANK YOU THANK YOU Our Cyprus Office: Fiduserve Management Ltd, 9 Kafkasou Street, 4th Floor, Treppides Tower Aglantzia, 2112 Nicosia, Cyprus Tel : Fax: info@fiduserve.com