Listing Alternative Investment Funds on EU stock exchanges
As part of on-going efforts to modernize its fund framework, Cyprus introduced a new law offering more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus Alternative Investment Funds (AIFs) and regulation on the role and responsibilities of their directors, custodians and external managers.
Types of AIFs:
The following items were introduced by the new AIF Law:
- Common Funds, a contractual structure where investors participate as co-owners of assets
- Umbrella structures with multiple investment compartments, allowing the management of different asset pools with separate investment policies and with ring-fenced assets and liabilities
- Public offerings of AIF shares / units
- Listing of securities issued by AIFs, increasing investor base, liquidity, marketability and transparency
- Role of depositary no longer solely reserved for credit or banking institutions, but may under certain conditions be carried out by other entities
AIFs can be managed either internally (self-managed) or externally by appointing an authorized manager (depending on the type of AIF).
Alternative Investment Fund with Unlimited Number of Persons:
– may be marketed to retail, or well-informed and/or professional investors
– freely transferable investor shares
– must appoint a global custodian
– can be listed on a recognised stock exchange, and AIFs marketed to retail investors can be traded
– subject to minimum capital requirements of €125,000 or €300,000 if a self-managed fund
– may be subject to certain investment restrictions depending on the investor type and the overall investment policy
Alternative Investment Fund with Limited Number of Persons:
– may be marketed only to well-informed and/or professional investors
– cannot exceed total number of 75 investors / unit holders
– freely transferable investor shares, with the condition that their transfer does not result in the AIF having more than 75 investors
– in certain cases may not be required to appoint a custodian (If total assets of the fund are less than €5 million euro, or its equivalent in another currency, or the fund has up to 5 investors, then the requirement to appoint a custodian may be waived)
– assets under management do not exceed the thresholds of €100 million (including leverage) or €500 million (5-year lock-up period without leverage)
Any type of Investment
AIFs can invest in any type of assets (such as stocks, bonds, derivatives, real estate, private equity, shipping etc.). However, the AIF license will be assessed on the knowledge of the manager on the specified investment objectives/strategy.
Listing of AIFs
AIFs may list on recognized EU stock exchanges, which has several main advantages.
First, it helps in the promotion and marketing effort, since a listed AIF is much easier to promote and raise funds from investors.
A listed AIF will have its unique IBAN number, which will clearly identify the stock exchange where it is listed. In a number of EU stock exchanges, the AIF will need to list in euros, whereas some other EU stock exchanges allow for multi-currency listings.
The second main advantage of a listed AIF is that its share registry will be maintained by a recognized depository and institutional investors will be able to receive their shares in the AIF electronically via Clearstream, Euroclear and others.
The ease with which investors will be able to buy and sell the AIF shares is also considered as a key advantage.
Listed AIFs are required to publish their NAVs not only on their own web site, but also on the web site of the stock exchange where they are listed in addition to the announcement of critical announcements, thus ensuring added transparency for all investors.
Last but not least, an AIF which has listed at least 80% of its shares on a recognized EU stock exchange does not need to maintain and use a Custodian, something that will result in tremendous cost savings and ease of operation as the Manager will be able to make decisions much faster.
In such cases however, the AIF will need to appoint a “Market Maker” to make a price in the AIF’s shares which will not deviate more than a specified level above or below the Net Asset Value (NAV) of the AIF.