Alternative investments generally include private equity, hedge funds, venture capital, futures, commodities, derivative contracts, collectible and luxury items like art and antiques, and in some instances even real estate.
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To understand AIFs, one must first define alternative investments, which are essentially non-traditional financial assets that fall outside of the most common or traditional asset categories such as stocks, government bonds, and cash.
Alternative investments generally include private equity, hedge funds, venture capital, futures, commodities, derivative contracts, collectible and luxury items like art and antiques, and in some instances even real estate. These assets are usually dealt with by institutional investors or authorized HNWIs since they involve higher levels of risk, are more complex in nature, and may be loosely regulated.
Hence, an alternative investment fund (AIF) is a privately pooled fund that allows institutional, professional, and well-informed investors to openly invest in these non-standard asset categories.
One of the main advantages of investing in AIFs is that it allows you to diversify your portfolio and benefit from markets that do not immediately follow the financial trends seen with indices such as the S&P 500 or Dow Jones. If you invest wisely, AIFs will help you build a portfolio that touches upon many different sets of assets, capitalization levels, and industries, and boost your income by not being tied to how stock and bond markets generally perform.
In Cyprus, AIFs can be created with an unlimited number of persons (AIF-UNP), a limited number of persons (AIF-LNP), or as a registered fund (RAIF). Furthermore, AIFs can be set up as fixed or variable investment companies, limited partnerships, or mutual funds in the case of AIF-UNPs.
Below are some of the most salient facts you need to know about how AIFs work on the island:
In Cyprus, one of the most popular AIFs is the registered alternative investment fund, or RAIF.
The Cyprus RAIF is unique because it does not place any limitations on the number of investors that can be involved in the fund, nor does it contain any provisions that dictate a minimum capital required. Furthermore, the RAIF does not need to be officially authorized by the Cyprus Securities and Exchange Commission (CySEC) but does have to be registered with said regulatory body. This allows you to set it up in a very short amount of time, making it a highly cost-effective vehicle.
Do keep in mind, however, that the RAIF has to be managed by an external administrator and can only be marketed to professional or well-informed investors. Additionally, a RAIF must invest at least 500 thousand Euros within its first year of existence.
During the past five years or so, Cyprus has established itself as a preferred AIF center within the European Union.
Growth in the sector has been remarkable. According to the Cyprus Investment Funds Association (CIFA), as of March 2022, there are 11.1 billion euros in assets under management with 322 management companies and Undertakings of Collective Investments (UCIs). 56 percent of the assets under management alone are handle by alternative investment fund managers (AIFMs).
So, what has led to this impressive build up in the local funds sector?
Reasons abound for professionals looking to set up their funds in Cyprus. Here’s a short list with the island’s main advantages:
As highlighted above, one of the primary reasons why professionals are setting up their investment funds on the island has to do with taxation.
Throughout the financial world, Cyprus is well known for the lenient and favorable tax conditions it offers international businesses. As a result, on an annual basis, hundreds of companies choose to establish their headquarters or operation centers in the eastern Mediterranean.
When it comes to AIFs, Cyprus’ flexible and business-friendly tax regime delivers the following:
As part of what’s needed to set up and run a successful fund in Cyprus, we can help you out with the following:
We will also provide support completing all of your fund’s required filings and statutory obligations, and help you arrange for the issuing, transfer, allotment, conversion, redemption, and buying of shares as required by your fund’s rules.
Finally, if you require help hiring personnel for the running of your fund, we can rely on our local and international network to find suitable candidates to fill these roles.
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As your business becomes more international and borders are crossed with nary a thought, setting up an international bank account to juggle the many different currencies you work with is a no-brainer.