What is an AIF in Cyprus, what forms can it take, and how must it be organised?

Under the AIF Law, an alternative investment fund is any collective investment undertaking, or compartment of one, that gathers capital from a number of investors to invest it for them under a defined policy and has no UCITS licence: in short, a pooled fund that is not a UCITS. The fund is governed by Law 124(I)/2018, which replaced Law 131(I)/2014 on 30 July 2018 and has never been amended. Its manager is governed by the AIFM Law, Law 56(I)/2013, the Cypriot version of the EU's AIFM Directive.

There are three regimes. The main one is often called an AIF with an unlimited number of persons. CySEC authorises it: it approves the application, the fund rules, the external manager (or the people running a self-managed fund) and the depositary. It decides within six months of a complete file. The fund may accept retail, well-informed and professional investors. An AIF with a limited number of persons (AIFLNP) is also authorised. Only professional and well-informed investors may join it, and there may be no more than 50 natural persons, counted on a look-through basis. A registered AIF (RAIF) is also closed to retail investors. CySEC enters it in a register instead of authorising it. It is managed externally, as a rule by an AIFM.

A common fund is a contract-based fund with no legal personality; its assets belong jointly to the unitholders and it always has an external manager. The exam material calls it a "mutual company", but the Greek term means a common (mutual) fund. An investment company is registered under the Companies Law with fixed or variable capital, and a limited partnership may be formed with or without separate legal personality.

An investment company, or a limited partnership with legal personality, is internally managed if it appoints no external manager. The exam material mentions only the company, but since 30 July 2018 such a partnership can manage itself too. A self-managed investment company above the AIFM Law thresholds, or one that opts in, is itself an AIFM; a partnership may manage itself only while it stays within those thresholds. Any other AIF appoints an AIFM, a UCITS management company, a manager licensed for funds below the thresholds, or an investment firm (such as a CIF). Either way its assets are entrusted to a depositary; only an AIFLNP may go without one, in narrow cases such as assets of €5 million or less.

The exam material sums up the rules common to all AIFs as authorisation, remuneration, conflicts, risk, liquidity and transparency. Since 30 July 2018, the AIF Law's chapter of common provisions has covered minimum assets, investment policy, risk, conflicts, liquidity, remuneration, valuation, conduct of business and transactions. A self-managed fund separates its risk function functionally and hierarchically from the operating units and portfolio management, reviews its risk systems at least yearly, documents its due diligence, runs stress tests and sets a maximum leverage level. Its organisation must let it identify, prevent, manage and monitor conflicts between the fund (with its directors and staff) and its investors, or with anyone involved in or closely linked to its business, keep incompatible duties apart and disclose any conflict that remains.

Its governing body has at least four natural persons, at least two with executive duties, and at least two people of good repute with adequate knowledge and experience actually run the business as senior management; risk staff may not be supervised by the heads of operating units or portfolio management. No one who effectively directs the external manager, or the self-managed fund, may sit on the depositary's board or in its senior management. Where the fund is externally managed, its board members and the people who run the external manager's business must tell the external manager about any other post, such as a directorship of another fund, that could cause a conflict.