What organisation must an AIFM have, and how must AIF assets be valued?

An AIFM must always use enough suitable people and technology to manage its funds properly. It needs sound administrative and accounting procedures and safeguards for electronic data processing; since 21 February 2025 the law adds that its network and information systems are set up and run under the EU's Digital Operational Resilience Act (DORA), which has applied since 17 January 2025. Internal controls include rules on staff dealing and on investing for the AIFM's own account, and must at least make every fund transaction traceable to its origin, the parties, its nature, and when and where it happened, and ensure that fund assets are invested as the fund rules and the law require.

A permanent, effective compliance function operating independently is required whatever the AIFM's size; only its staffing and organisation are scaled. Compliance staff should not be involved in what they monitor or paid in a way that clouds their objectivity, but the AIFM may drop those two conditions if it proves them disproportionate and the function stays effective, and it need not set up an independent compliance unit where that would be disproportionate to its size or business. The model mirrors the one described in What must an investment firm's compliance function do, and how independent must it be? Where appropriate and proportionate, a separate, independent internal audit function sets an audit plan, makes recommendations, checks they are followed and reports; it evaluates, while day-to-day risk control stays with the risk function. A self-managed AIF under the AIF Law always needs compliance, and internal audit too once it is offered to retail investors.

Under the AIFM Law, each fund needs appropriate and consistent procedures for a proper and independent valuation, following the law of the fund's home country and/or its constitutional documents. Assets are valued and the net asset value (NAV) of each unit or share worked out at least yearly, with investors informed as the fund documents say. An open-ended fund is also valued as often as its assets and its dealing frequency make appropriate, and a closed-ended fund whenever its capital goes up or down.

The AIF Law applies parallel rules to internally managed Cypriot AIFs (and, so far as consistent with the AIFM Law, to RAIFs managed by an AIFM). Valuation rules come from company or partnership law, so far as consistent with the AIF Law and the constitutional documents, or, for a common fund, from its rules. NAV per unit is worked out at least yearly, and valuations also take place on each date units are issued, redeemed or repurchased and on the reference dates of the annual and half-yearly reports. Because every such fund publishes both reports, that means at least two valuations a year in practice.

Valuation is done by an external valuer independent of the fund, the AIFM and closely linked persons, or by the AIFM itself if the valuation task is functionally independent of portfolio management and the pay policy and other measures guard against conflicts and undue influence. The depositary may act as valuer only after separating its depositary and valuation tasks functionally and hierarchically, and identifying, managing, monitoring and disclosing the conflicts to investors. For in-house valuation, CySEC may require checks by an external valuer or, where appropriate, an auditor.

The AIFM must be able to show that an external valuer is registered under a mandatory professional scheme backed by law, by regulation or by rules of professional conduct, can offer sufficient professional guarantees and was appointed under the delegation rules; the valuer may not pass the work to a third party. The AIFM notifies the appointment to CySEC, which may insist on another valuer if these conditions are not met; the exam material speaks of CySEC not approving the valuer, but since 2013 the law has required only notification, not prior approval. The AIFM remains liable to the fund and investors for proper valuation and for calculating and publishing the NAV, whoever values; the valuer is liable to the AIFM for losses from its negligence or intentional failure, whatever the contract says.