Mini Alternative Investment Fund Managers in Cyprus

Introduction to Mini-AIFM Legislation

On July 3, 2020, the Cypriot Parliament enacted the Mini Alternative Investment Fund Managers Law (L. 81(I)/2020), known as the Mini-AIFM Law, establishing a regulatory framework for sub-threshold Alternative Investment Fund Managers (Mini-AIFMs or Sub-threshold AIFMs) based in Cyprus. Before this law, Sub-threshold AIFMs were not subject to independent licensing in Cyprus. The Mini-AIFM Law complements the Alternative Investment Fund Management Law (L. 56(I)/2013), as amended (AIFM Law), which incorporates the EU Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) into Cyprus law and governs full-scope AIFMs.

Definition of a Mini-AIFM

Under the Mini-AIFM Law, Mini-AIFMs are defined as companies limited by shares, appointed as external managers by an Alternative Investment Fund (AIF) to manage the AIF. These entities must have their registered office and central management in Cyprus. Mini-AIFMs require a minimum initial paid-up capital of €50,000. If the portfolio of AIFs they manage exceeds €125 million, they must hold additional own funds equal to 0.02% of the amount above €125 million.
The board of directors must include at least four individuals, with at least two performing executive roles. Mini-AIFMs are regulated by both the Mini-AIFM Law and the Cypriot Companies Law (Cap. 113), as amended.

Obligations of Mini-AIFMs

Mini-AIFMs authorized by CySEC under the Mini-AIFM Law must adhere to ongoing obligations, including:
● Providing accurate and correct information to CySEC.
● Acting in the best interests of the AIFs or their investors, while considering market integrity.
● Ensuring that remuneration, commissions, or non-monetary benefits do not violate their duty to act honestly and fairly.
● Taking reasonable steps to prevent conflicts of interest between the AIFs they manage, themselves, and other managed AIFs.
● Separating risk management functions from operating units, including portfolio management, both functionally and hierarchically.
● Implementing a suitable liquidity management system for each AIF, with procedures to monitor liquidity risk, ensuring the AIF’s liquidity profile aligns with its obligations, investment strategy, and redemption policy.
● Marketing AIF units in Cyprus to professional or well-informed investors, and in other EU Member States after notifying CySEC.
● Adopting internal procedures and arrangements tailored to the nature of the AIFs they manage, as required by the Mini-AIFM Law.
● Establishing consistent procedures for each AIF to ensure proper and independent valuation of the AIF’s assets