Investment funds have become a cornerstone of Cyprus’s new business model, prompting ongoing efforts to enhance the legislative and regulatory framework.
In recent years, coordinated efforts by relevant authorities have resulted in significant contributions to the Cypriot economy, with investments flowing into crucial sectors.
Data from the Cyprus Securities and Exchange Commission (CySEC), which oversees these funds, clearly illustrates the current landscape and economic benefits.
Investment funds represent a collective investment process where multiple investors pool their capital to benefit from collective advantages, including risk reduction, professional fund management, and lower transaction costs.
Cyprus has emerged as an ideal jurisdiction for establishing and managing Investment Funds, Alternative Investment Funds (AIFs), Undertakings for Collective Investment in Transferable Securities (UCITS), and other alternative investment vehicles.
The investment funds sector – including UCITS and AIFs – presents a significant opportunity for the Cypriot economy. It also challenges banking institutions to develop comprehensive service packages to attract more investors and professional managers. Meeting their complex investment and management needs in a highly competitive European and global economic environment is crucial to achieving this goal.
Global Appeal
CIFA Chair Maria Panayiotou notes: “In recent years, Cyprus’s investment funds have demonstrated resilience while supporting the country’s economic growth momentum. We’ve found our niche in a large and highly competitive market by offering high-quality services at comparatively low costs, supported by a robust regulatory framework, attractive tax incentives, and Cyprus’s inherent advantages such as security and strategic location”.
“Despite the sector’s regulatory framework being established just 11 years ago, Cyprus has demonstrated remarkable resilience, adaptability, and growth, attracting investment funds and managers from across the globe. The sector creates specialised jobs, provides significant capital to key sectors, and contributes to diversifying and modernising the country’s economic model. We’re confident that collective investment schemes and industry professionals will play a catalytic role in Cyprus’s broader economic and social prosperity”.
Key Statistics
As of Q2 2024, CySEC oversees 328 Collective Investment Management Companies and Collective Investment Schemes (CIS), with 250 actively operating. Of these, 226 are externally managed CIS, 33 are internally managed CIS, and 69 are external managers. The total includes 44 AIFMs (Alternative Investment Fund Managers), 50 sub-threshold AIFMs, 3 UCITS Management Companies, and 5 dual-license companies.
Assets under management by fund domicile as of June 2024 show Cyprus leading with 74.1%, followed by Luxembourg (17.4%), Ireland (4.5%), Portugal (2%), and others (2%). Total AUM reached €9,365,801,909.
Q2 2024 saw total AUM of €9.4 billion, a 2.88% increase from Q1, with net asset value at €8.9 billion. AIFMs accounted for 59% of AUM, dual-licensed companies 18%, sub-threshold AIFMs 11%, UCITS Management Companies 11%, and supervised CIS under non-Cypriot management companies 1%.
Investment Strategies
UCITS invest approximately 89.3% of AUM in transferable securities, 7% in UCITS and other CIS units, and 2.6% in bank deposits. For AIFs, RAIFs, and RCISs, 32.2% of AUM is in Private Equity, 13.2% in Hedge Funds, 11.7% in Real Estate, and 11.3% in CIS units.
Of 225 active CIS, 74.1% of AUM is held by 198 Cypriot schemes (13 UCITS, 49 AIFs, 45 Limited Number AIFs, and 91 Registered AIFs).
Among active CIS, 162 invest partially or wholly in Cyprus, representing €2.5 billion (26.6% of total AUM). Private Equity comprises 68.5% of Cyprus investments, with real estate at 12.8%.
Investor demographics show that 99.1% of UCITS investors are retail investors. For AIFs, Limited Number AIFs, and Registered AIFs, 68.8% are well-informed investors, 18.8% are professional investors, and 12.4% are retail investors.
Cyprus: A Bridge for Investment
As an EU member state, Cyprus benefits from harmonised EU financial services regulations and serves as a bridge between Europe, the Middle East, and Africa. This position stems not only from its geographical location but also from its high-quality financial services, coupled with flexible and clear laws and regulations recently modernised through the Alternative Investment Funds Law.
The July 2014 Alternative Investment Funds Law aligned Cyprus’s legal and regulatory framework with EU asset management directives. Following extensive efforts, Cyprus introduced legislation offering enhanced investment structuring options and AIF supervision, along with regulations governing directors’ roles and responsibilities.
AIFs established under domestic fund legislation can be privately placed or marketed to professional investors across the EU under the Alternative Investment Fund Managers Directive passport.
