The different types of Alternative Investment Funds
Investment funds are arguably the most efficient way for collective investment management. The regulators have acknowledged that and refinements in the various laws, regulations and directives are regularly being introduced in consultation with market participants. The Cyprus Securities and Exchange Commission (CySEC) is the regulating authority for such investment activities in Cyprus, following the pan-European frameworks with investment funds regulated under CySEC passported to the rest of the European Union.
The word alternative that makes up the general type of investment funds, i.e. Alternative Investment Funds (AIF), simply denotes that such an investment funds may follow an investment strategy beyond those considered conventional and in particular, an AIF can be a private equity funds or a venture capital funds, a hedge fund or a crypto fund.
An AIF can be distinguished between an AIF with Unlimited number of Persons and an AIF with Limited number of Persons (AIFNLP), for which we compare their main features side-by-side in the table below.
Since 2018, the Registered Alternative Investment Funds (RAIF) are becoming the most chosen investment fund type for new investment funds set up in Cyprus under CySEC. What makes a RAIF attractive is, among other features, the fact that there is no licensing requirement. This is possible by the RAIF being always externally managed by an Alternative Investment Fund Manager (AIFM) and its launch is both cost and time efficient, requiring only a few weeks from the notification pack filling with CySEC.
Comparing the investment funds types
The Investment Funds team at SALVUS Funds, has added the RAIF, along the limited and the unlimited AIF types, in the table below and see their common and different features in terms of available structure for the investment vehicle, minimum regulatory capital and so on.
| Registered AIF (RAIF) | AIF with Unlimited number of Persons | AIF with Limited number of Persons (AIFLNP) | |
|---|---|---|---|
| Investment vehicle options | Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIC), Common Fund (CF), Limited Partnership (LP) | Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIC), Common Fund (CF), Limited Partnership (LP) | Variable Capital Investment Company (VCIC), Fixed Capital Investment Company (FCIC), Limited Partnership (LP) |
| Possibility to contain multiple sub-funds | Yes | Yes | Yes |
| Possibility for internal or external management | Always externally managed by an AIFM | Can be internally managed | Can be internally managed |
| Minimum Regulatory Share Capital | A RAIF does not require a minimum regulatory capital as it always externally managed by an AIFM | 125,000 EUR for internally managed AIF, 300,000 EUR if externally | 50,000 EUR for internally managed AIF, No requirement if externally managed |
| Maximum number of investors | Unlimited | Unlimited | 50 |
| Eligible investors | Professional and/or Well-Informed Investors | Professional and/or Well-Informed Investors, or Retail Investors | Professional and/or Well-Informed Investors |
| Minimum Assets Under Management (AUM) within the first 12 months | 500,000 EUR | 500,000 EUR | 250,000 EUR |
EU-wide distribution through an AIFM
The Alternative Investment Fund Managers Directive (AIFMD) introduced passporting for distributing units of any AIF externally managed by an AIFM to professional investors in the EU. AIFMs in Cyprus under CySEC, are thus free to market any of their EU AIF to professional investors in the European Union. Using the regulator-to-regulator notification mechanism, instead of having to apply for authorisation in each EU Member State, this is a simplified and standard process.
The Investment Funds team at SALVUS
SALVUS’ Investment Funds team is composed by professionals specialising in Investment Funds’ set-up, structuring and administration. We offer, to our clients and partners, a range of services including investment funds licensing, funds administration, internal audit, risk management, compliance, and regulatory reporting services.
We help in choosing the suitable type and structure to establish a new fund, by considering your needs, tax system and the regulation. We promptly prepare the necessary documentation for the incorporation of the Investment Fund and support in dealing with CySEC pre and post authorisation.
Due to our extensive network, we assist our partners and clients with the selection and appointment of non-executive directors, external auditors, legal advisor, as well as custodian or depositary – as needed.
Please contact us at info@salvusfunds.com to discuss your Investment Fund structure, the needs of your Investment Fund or simply your vision for an Investment Fund set up.
The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.