The growing fund industry in Cyprus

The growing fund industry in Cyprus

In just a few years, Cyprus has become one of the top emerging investment fund centers in Europe. At the end of the third quarter of 2021, the amount of Assets under Management of Cypriot investment funds reached €11.6 billion, and the island’s growth rate has far outshined that of other European countries.

Xenia Neophytou, Managing Director of CX Financia, participated in the International Business Conference in London to discuss why Cyprus is one of the fastest-growing international fund and asset management destinations. According to Xenia,

“The success of the Cyprus fund industry lies in its ecosystem, which gives massive impetus to foreign investments through incentives and structural reforms. Cyprus has received a vote of confidence from third parties, and looking forward to the future, new laws and regulations lay the groundwork for further expansion of the fund industry in Cyprus.” 

You can find Xenia’s presentation here.

In this article, the CX Financia team will explain why the fund sector in Cyprus makes a vital contribution to Europe’s economy and how the Cyprus fund industry is responding during this unprecedented time.

  • Why Cyprus is Europe’s new investment fund hub.
  • Responding to turbulent times and the COVID-19 crisis.
  • Vote of confidence for the Cyprus fund industry.
  • New laws and regulations.
  • Is the world situation posing a threat to the Cyprus financial services sector?
  • Choosing CX Financia as your trusted partner

Why Cyprus is Europe’s new investment fund hub 

The success of the fund industry in Cyprus lies in its ecosystem. The island boasts a large community of auditors, lawyers, bankers, and numerous established service providers that form a solid foundation on which the fund industry can grow and expand.

Apart from the highly skilled workforce and high-calibre service providers, the European legislative framework and tailored tax system make Cyprus a center of excellence for the international fund and asset management industry. An increasing number of foreign investors and asset managers are choosing Cyprus as a headquartering base, taking advantage of the modern and efficient tax system with a solid double tax treaty network with more than 65 countries.

The Cyprus fund ecosystem accommodates a complete suite of fund types and asset classes across a range of investment opportunities, including hedge funds and private equity projects. Strategically located at the crossroads of three continents, Cyprus provides easy and low-cost access to European markets. The low set-up and running costs compared to competing markets make the island Europe’s new investment fund hub and a major cross-border hotspot with low barriers to entry.

Learn everything you need to know about investment funds in Cyprus.

Responding to turbulent times and the COVID-19 crisis

COVID-19 has turned the business world on its head, with a significant negative impact on the overall equity index return. However, the Cyprus fund industry showed strong resilience even during unprecedented times, with assets under management recording double-digit growth. On an annual basis and during pandemic conditions, AuM increased by 48.7%

At the end of the third quarter of 2021, the total number of licensed Management Companies and Undertakings of Collective Investments was 298. About 50 more licensing applications are pending approval from the Cyprus Securities and Exchange Commission (CySEC).

Looking at the post-covid world, Cyprus takes steps to adapt to the market’s changing needs continuously. New regulatory and tax frameworks are coming into full force to accommodate these changes – such as limited liability partnerships and fund administration law

Vote of confidence for the Cyprus fund industry

The access to markets and investor capital, the ideal business environment, the tax system, and the continuously updated legislative framework are factors that make Cyprus an attractive fund jurisdiction.

For all these factors and more, Cyprus has received a vote of confidence from third parties – both organizations and governments.

MUFG establishes a new operational centre in Cyprus

The first vote of confidence comes from MUFG Investor Services, the global asset servicing arm of Mitsubishi UFJ Financial Group, one of the world’s largest and most trusted banks with $3.2 trillion in assets. MUFG Investor Services announced its decision to establish a new operational center in Cyprus to serve as a business hub to spread MUFG’s operational coverage further and support fund administration needs.

The expansion of MUFG to Cyprus is an important step for the Investment Funds sector and the Cypriot economy towards the development of an integrated ecosystem for collective investment. At the same time, it sends optimistic signals around the effort to bridge the Asian Market and its significant prospects for attracting investment funds in the European market.

SEBI regulatory development

Another important highlight is the SEBI regulatory development. On June 14, 2021, the Indian Minister of Finance issued an order classifying Cyprus as an eligible country for category 1 FPI Foreign Portfolio Investors registration under the Securities and Exchange Board of India (SEBI) regulations.

The acceptance of Cyprus funds allows us to step up our efforts to attract investors from India, a market with huge prospects. But apart from India, this development opens opportunities to other jurisdictions which are considered great investor pools, such as Greece, Israel, the UK, and the USA.

Cyprus and the European Investment fund enter a new agreement

The agreement between Cyprus and the European Investment Fund provides a stepping stone for further developing the nascent venture capital market. The agreement sets out the framework for the European Investment Fund to manage the Cyprus Equity Fund, the first equity fund in Cyprus to be supported by public resources.

Cyprus Equity Fund will provide the necessary boost for Cyprus’ emerging and promising innovation ecosystem. The fund will facilitate the further development of the local fund industry by providing the opportunity for local and international Venture Capitals to operate and invest in Cyprus.

The government’s confidence in the project is evident by the increase of the initially approved support from €10m to a total of €30m.

New laws and regulations

New legislative proposals and frameworks lay the groundwork for an even brighter future for the Cyprus fund industry.

Legislation on limited liability partnerships

The legislation on limited liability partnerships enables AIFs to be set up as limited liability partnerships, which further enhances the overall legal framework and greatly benefits legal structures for small funds and fund managers.

Fund administration 

Another proposal that aims to enhance the fund administration profession is the introduction of fund administration law. A bespoke regime regulating the operations of fund administrators is an important milestone for securing additional protection for fund managers and investors.

Is the world situation posing a threat to the Cyprus financial services sector?

It is expected that the financial services sector in Cyprus will continue to expand based on a resilient regulatory framework, prudent supervision, consumer protection, and a robust money-laundering prevention mechanism.

But while we remain optimistic for the future, the global economic implications of the Russia-Ukraine conflict pose unanswered questions. The unprecedented world situation has caused turbulence in the markets, with stock market prices reacting sharply and the price of commodities soaring. “Although the overall impact on the global economy depends on the size and duration of Western sanctions and any counter sanctions from Russia, we’ve already seen a shift towards traditional safe havens such as government bonds and gold. The wisest choice for investors and investment managers is to wait until the new reality becomes more apparent.” said Xenia Neophytou during the International Business Conference in London.

Choosing CX Financia as your trusted partner

At CX Financia, we apply our extensive experience in the industry to support organizations obtain their license, manage their risks, and keep up with regulatory and compliance requirements.

Our client base includes a diverse range of Investment Firms and Alternative Investment Funds (AIFs) such as Brokers, IBs, Asset Managers, Market Makers, EMIs, and PIs.

Our dedicated team of advisors can answer any questions you might have regarding your investment fund structure. Request a consultation today or find out more about our investment firm services.

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