Who may invest in an AIF, and how can AIFs be marketed to retail investors in Cyprus?

The AIF Law knows three kinds of investor. A professional investor is a professional client, or one who can be treated as professional on request, under the MiFID rules described in How are clients categorised as retail, professional or eligible counterparties? A well-informed investor is not professional but confirms in writing either that they have enough knowledge and experience or that their business involves assets of the same kind as the fund's, and also invests at least €125,000, or has been assessed as well-informed by a bank, AIFM, UCITS management company, CIF or licensed small manager, or works in such a firm at senior-management pay level; those who run the fund or its manager, or manage its investments, also qualify. Everyone else belongs to the general investing public: retail investors.

The main regime may admit all three groups; AIFLNPs and RAIFs admit only professional and well-informed investors. A Cypriot AIF managed by an AIFM, or itself an AIFM, reaches the public under the AIFM Law's retail rules; any other AIF may be offered to retail or well-informed investors in Cyprus only after CySEC authorises it under the AIF Law.

CySEC may allow AIFMs to market units of AIFs they manage to retail investors in Cyprus, domestically or across borders and whether the funds are EU or non-EU, once the AIFM holds a CySEC permit for this. CySEC's marketing directive sets the conditions: among other things, a foreign fund must be under ongoing prudential supervision at home, retail marketing must be allowed there, and the fund must follow the investment rules for Cypriot retail AIFs, besides the usual notification.

With the permit, CySEC may impose on the AIFM or fund obligations beyond, and so stricter than, those for marketing to professional investors in Cyprus. The only ceiling is non-discrimination: EU AIFs established in another Member State may not face stricter or additional obligations than Cypriot AIFs marketed in Cyprus. The exam material says the extra obligations cannot be stricter than EU rules; the AIFM Law has allowed stricter ones since it was enacted in 2013. CySEC tells the European Commission and ESMA which kinds of AIF may be sold to retail investors in Cyprus and what extra obligations apply, and informs both of later changes.

Since 18 October 2021 an AIFM marketing to retail investors must also provide facilities to process orders and payments, explain how they work, help investors use their rights, give access to the annual report and pre-investment information, inform investors on a durable medium and act as a contact point for the authorities. The facilities may be electronic, and no local presence is required.

The AIFMD passport lets an authorised EU AIFM market the EU AIFs it manages to professional investors at home and in other Member States by notification between supervisors. It reaches professional investors in EU and EEA states only: not retail investors, hence the separate permit, and not third countries, where local law decides.

The AIFM Law's third-country passport rules take effect only once the European Commission adopts a delegated act for that purpose. Until then, a non-EU AIFM may market to professional investors in Cyprus by national private placement if it meets the law's transparency duties, cooperation arrangements link CySEC with the supervisors of the manager and of the fund, and neither the manager's country nor that of a non-EU fund is on the FATF list of non-cooperative countries; it notifies CySEC and may start two months later unless CySEC objects with reasons. Marketing to retail investors would need the CySEC permit described above.