Cyprus Private Funds- ICIS
Lack of funding has become a major issue for entrepreneurs and project promoters all
over the world as banks around the globe cut down on lending and become risk-averse.
An effective way to raise money with regulatory approval and through a flexible
structure is through a regulated private fund.
By regulated we mean an authority first gives its approval for the setting up of the fund,
and thereafter acts as supervisor and monitors the operation of the fund. In Cyprus, the
Central Bank of Cyprus acts as regulator and supervisor for the private funds.
Structure of ICIS
Cyprus is already home to more than 70 privately owned but regulated funds, known as
International Collective Investment Schemes (ICIS), which can invest in a mix of assets
including equity, bonds and derivatives as well as property and large projects.
An ICIS is essentially a limited liability company operating under the supervision of the
Central Bank of Cyprus with the following main characteristics:
1) The share capital is variable and the shares are issued by the company depending
on capital injections and redemptions without the need to go through the
Registrar of Companies
2) The management shareholders are vetted and approved by the Central Bank of
Cyprus and need to invest minimum EUR 50.000 into the Fund either in cash or
through asset exchange
3) Every ICIS needs to have minimum 2 Executive Directors, who are vetted and
approved by the Central Bank of Cyprus and will need to pass the due diligence
requirements such as knowledge and experience of the industry in which the
Fund will be active, and should be able to provide clean criminal record,
education qualifications and work references
4) The objectives and Investment Strategy of the Fund is clearly defined in the
Investment Memorandum which is vetted by the Central Bank of Cyprus and is
the document through which investors enter and exit the Fund. The Investment
Memorandum is like the Prospectus which includes all the terms and conditions
under which the Fund operates
5) The Fund can raise money from only 100 investors who must be classified as
professional investors under the MiFID rules with minimum EUR 50.000
investment per investor
6) The assets of the Fund are held by a Custodian Bank
7) An independent administrator firm calculates the Net Asset Value (NAV) of the
Fund and reports it to the Central Bank and is also responsible for issuing and
canceling the shares
8) A regulated Investment Firm is usually appointed to be responsible for the actual
management of the Fund.
9) Audited accounts are prepared and submitted at the end of the financial year-end
10) The Same corporate tax applies to ICIS, which as explained above, are structured
to operate as a limited liability company
Investor Protection
At first glance, the structure may look complicated, but if one looks carefully, it will be
obvious that with the exception of the business risk, all the other risks for the investors
have been addressed and covered.
The management shareholders and executive directors have been:
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vetted and approved by the regulator,
the fund is flexible in the sense that when there is demand and new investors
inject money, new shares or units will be issued without delay and when investors
exit, the shares are redeemed and the units cancelled,
The investment strategy, entry and exit terms as well as all relevant fees are
clearly defined in the Investment Memorandum, ensuring full transparency,
The assets are held by a reputable custodian bank, ensuring that the entrepreneur
or major shareholders cannot abuse minority shareholder rights, while the
valuations based on which investors enter and exit are calculated by an
independent administrator, thus ensuring fair play for all investors,
A regulated Fund Manager is appointed to handle the investment decisions of the
Board.
Regulated private funds are used to raise funds from Private Equity and Venture Capital
Funds as well as professional investors who insist on having their rights fully protected.
Not a UCITS
I know many promoters who c0mplain at the maximum 100 investor rule and the fact
that all investors in the Fund need to be classified as professional and invest a minimum
of EUR 50.000 each.
Such promoters usually look for a structure through which they want to be able to invest
in any project they want, and at the same time offer shares or units to as many investors
investing smaller amounts. Usually, the private funds are confused with the open ended
mutual funds, which are known as UCITS.
The legal structure of a UCITS is totally different to a private regulated fund, ICIS, and
there are far more restrictions and additional obligations imposed.
In any event, in the majority of cases, most of the promoters applying for an ICIS license
would not qualify to receive a UCITS license.
Costs
After understanding the structure, the next most frequently asked question is the costs
involved with the operation of an ICIS.
The setting up fees cost between EUR 10.000 to EUR 15.000 depending on who is doing
the registration and always include securing the Central Bank permission.
The next negotiation point is whether the ICIS will pay the annual charges to the
Custodian Bank, the Administrator and the Regulated Fund Manager based on a flat fee
or based on Net Asset Value (NAV).
An important consideration is the frequency of transactions (how active the fund is) and
how easy it is to secure valuations of assets.
About Eurivex
Eurivex Limited is a Cyprus regulated investment firm regulated by Cyprus Securities &
Exchange Commission (CySEC, # 114/10), licensed to trade in shares, bonds and forex.
Eurivex is licensed to offer asset management and hold client funds in safe custody.
Eurivex has also been accepted as a Nominated Advisor for listings on the Emerging
Companies Market of the Cyprus Stock Exchange.
Eurivex acts as regulated Investment Manager for five ICIS and has listed
five companies on the Emerging Companies Market of the CSE.
Eurivex Contact details
Head Office Address
2 Armenias Street, Office 101, Nicosia 2003, Cyprus
Telephone
+357 22 02 88 31
Fax
+357 22 25 53 18
Web site:
www.eurivex.com
Enquiries
info@eurivex.com
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The material in this document is for informational purposes only and does not constitute legal or professional advice.
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For clarifications: Shavasb Bohdjalian email: shavasb@eurivex.com