Questions on Registered Alternative Investment Funds (RAIF) in Cyprus

A Registered Alternative Investment Fund (RAIF) is similar to an Alternative Investment Fund (AIF) with a key difference:

a RAIF is registered, and by extension regulated, under the responsibility of an external Alternative Investment Fund Manager (AIFM), whereby all operational and marketing efforts are conducted under the liability of the AIFM.

The Cyprus Registered Alternative Investment Fund (RAIF) is accommodated under the umbrella structure of specialised and regulated European Compliance Fund Management Company, the external AIFM Fund Manager and is subsequently fully European passported. As opposed to an AIF, the establishment of a RAIF is attractive as it allows the fund to quickly establish a compliant structure in Europe avoiding timeconsuming procedures and the significant cost involved.

This article is dedicated to answering common questions related to the establishment and operation of a Registered Alternative Investment Funds (RAIFs).

  1. What are the minimum capital requirements for a RAIF?
  2. What types of investors can the RAIF accept?
  3. Is there any limit on the number of investors the can participate in a RAIF?
  4. Will the RAIF be assigned an ISIN?
  5. Can the units of a RAIF be distributed through fund distribution hub markets?
  6. Which fund hub markets can SALVUS undertake to guide in listing a RAIF?
  7. Can funds of funds buy units of a RAIF?
  8. Who handles the onboarding of investors to the RAIF and the KYC process?
  9. Is the investor legal relationship with the RAIF or the external AIFM?
  10. Who is responsible to produce all the agreements involved in operating and onboarding investors to the RAIF?
  11. Would a Cypriot RAIF face any challenge in opening prime brokerage accounts outside of EU e.g. with a UK prime broker?
  12. If there are more than 1 investment strategies, how could a RAIF accommodate that?
  13. Is there a requirement for the Shareholder of the RAIF to be a Director in the RAIF?
  14. What is the timeframe to establish a RAIF?

1. What are the minimum capital requirements for a RAIF?

There is no capital requirement to setup a RAIF, although, a RAIF must have a minimum of EUR 500,000 assets under management (AUM( within the first year of establishment. In contrast, a self-managed AIF would need 125,000 EUR of minimum capital requirement.

2. What types of investors can the RAIF accept?

  • Well-informed investors

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) – see Elective Professional Investor. 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 being aware of all risks in the proposed investment.

  • Elective Professional Investor

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

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

  • “Per-se” Professional Investor

Per-Se professional investors under MiFID II, are investors who possess the experience, knowledge, and expertise to make their own investment decisions and to assess the risks involved and comply with the following criteria:

    • Entities which are required to be authorised or regulated to operate in the financial markets. The list below shall be understood as including all authorised entities carrying out the characteristic activities of the entities mentioned:
      • entities authorised by a Member State under a directive, entities authorised or regulated by a Member State without reference to a directive, and entities authorised or regulated by a third country:
    • Credit institutions
    • Investment firms
    • Other authorised or regulated financial institutions
    • Insurance companies
    • Collective investment schemes and management companies of such schemes
    • Pension funds and management companies of such funds
    • Commodity and commodity derivatives dealers
    • Locals
    • Other institutional investors
    • Large undertakings meeting two of the following size requirements on a company basis:
      • balance sheet total: EUR 20,000,000
      • net turnover: EUR 40,000,000
      • own funds: EUR 2,000,000
    • National and regional governments, including public bodies that manage public debt at national or regional level, Central Banks, international and supranational institutions such as the World Bank, the International Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organisations.
    • Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions. Professional Clients are subject to a lower level of investor protection compared to Retail Clients, but receive more protection compared to Eligible Counterparties.

3. Is there any limit on the number of investors the can participate in a RAIF?

RAIFs can have an unlimited number of investors. Unlike AIFLNPs, where the maximum amount of investors are up to 50 investors (for all compartments).

4. Will the RAIF be assigned an ISIN?

Yes, the RAIF will be assigned a unique, universally recognizable international securities identification number (ISIN)

5. Can the units of a RAIF be distributed in fund hub markets?

Yes, there is increasing volume of orders for units of RAIFs to be executed in fund hub markets with distribution inside and outside the country of issuance and processed through cross-border market infrastructures. These are a few large infrastructure players, offering fund transaction services and infrastructure components along the processing value chain to support both domestic market and cross-border distribution.

6. Which fund hub markets can SALVUS undertake to guide in listing a RAIF?

The process is similar to all fund hub markets, therefore the answer is we can provide guidance for all. Nevertheless the ones we are most experience with are  FundSettle by Euroclear and Vestima by Clearstream, Calastone, Allfunds.

7. Can funds of funds buy units of a RAIF?

Yes, as in question #2 funds of funds (per-se professional investor) are eligible investors into RAIFs.

8. Who handles the onboarding of investors to the RAIF and the KYC process?

The external AIFM handles all of these.

9. Is the investor’s legal relationship with the RAIF or the external AIFM?

The investor agreement will be between the RAIF and the investors, and not between the external AIFM and the investors.

10. Who is responsible to produce all the agreements involved in operating and onboarding investors to the RAIF?

The external Alternative Investment Fund Manager (AIFM).

11. Would a Cypriot RAIF face any challenge in establishing prime brokerage relationships outside of EU?

Prime brokerage (PB) relationships would depend on volume, and if outside the EU would also depend on the PB’s compliance culture along with a few other variables. Nevertheless, in our experience, RAIFs are very welcome across the globe.

12. If there are more than 1 investment strategies, how could a RAIF accommodate this?

There would be a compartment per investment strategy.

13. Is there a requirement for the Shareholder of the RAIF to be a Director in the RAIF?

There is no such requirement. Two non-executive directors are needed, at least one needs to be independent and one of the two to reside in Cyprus.

14. What is the timeframe to establish a RAIF?

As SALVUS we aim to complete the whole procedure for the establishment of a RAIF within 2 weeks, and in our experience it can rarely take up to one month.

Please contact us, if you require further information. We will be glad to support you in finding the most appropriate solution for your scope or answering your questions.

#StayAhead.

Should you be interested to read more about topics relating to investment funds, please visit articles previously authored by SALVUS:

 The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.

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