• Cyprus Externally-Managed AIF vs. Self-Managed AIFLNP

    By B2B Lateral Thinking Solutions

    18-10-2017

    The first question in each and every discussion about funds in Cyprus is about the differences between an externally-managed Alternative Investment Fund (AIF) and a self-managed AIF with Limited Number of Persons (AIFLNP). The second question raised by almost all of our clients is which one is the best to have.

    To address the first question, we have prepared the table below that outlines the key differences between the two approaches. The list of differences is not exhaustive but it gives a good idea on what each fund can and cannot do.

    The second question is somewhat more difficult to tackle as there's no one-size-fits-all answer. For example, if you would like to attend conferences and have exhibition stands to distribute your fund then you will have to employ an externally-managed AIF. If, however, you would like to have a discrete arrangement where you operate the fund directly with a small expected number of Assets Under Management (AUM), then a self-managed AIFLNP might be a better option. Usually, after careful consideration of the listed differences, it becomes evident what is the most appropriate way.

    Related Article: AIFLNP – Organisational Chart.

    Last but not least, everyone is interested about the cost differences between the two structures. The question is rather simple but the answer might be rather complicated. This is because the fund is a ‘live’ organisation with hopefully increasing AUM and exposed to today’s everchanging regulatory environment. As such, the running cost of each structure can be misunderstood. Let’s see some examples:

    • An external fund manager charges a percentage fee on the AUM, subject to a fixed minimum amount. As the AUM increase, so does the running cost.
    • Suppose, a new piece of legislation comes into force and the fund needs to have three new policies. The quotation you have in your hands for the operation of your AIFLNP most probably does not include this work.
    • The size of your operation is such that you cannot operate the AIFLNP without specialised systems any longer. Such future costs are not captured in today’s discussion.
    • The operational cost of having to replace a key function holder that handed in their notice is neither quantifiable nor included in any quotations you might obtain.
    • The cost (time, operational disruption) of switching to the right structure if the wrong one had been chosen can be significant.

    It is therefore vital to optimise costs well after you have established which structure is the right for you. Sometimes the unmeasurable elements of our decisions tend to be the most expensive ones.

    Related Article: AIFLNP – Compliance Calendar.

    Self-Managed AIFLNP Externally-Managed AIF
    Capital requirements N/A (expected to change to EUR 50,000) EUR 125,000
    Setup & Operational Cost Can be more expensive at inception but significantly cheaper than Externally Managed as the AUM grow Can be cheaper at low levels of AUM but cost increases significantly with the fund size
    Distribution Not possible Possible
    Passporting Not possible Possible, subject to certain conditions
    Control and discreteness Full Limited
    Maximum number of investors 75 Unlimited
    Type of investors Professional / Well informed only Any
    Size limitation EUR 100m with leverage / EUR 500m no leverage Unlimited
    Depositary Required May not appoint when AIFLNP’s:
    • total assets do not exceed EUR 5m; or
    • its investors do not exceed five persons; or
    • its assets are not subject to custody.

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

B2B Lateral Thinking Solutions

B2B Lateral Thinking Solutions is a boutique consultancy operating from Cyprus and servicing private, corporate and institutional clients. Our team of dedicated, passionate and highly qualified professionals assists numerous clients across the EU, Russia and CIS countries. Lateral thinking is not only a name. Lateral thinking defines how we approach problems and our work ethic. We partner up with our clients to uncover solutions through indirect avenues and by employing creative thinking.

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Cyprus Self-Managed Alternative Investment Funds with Limited Number of Persons (AIFLNP) - Compliance Calendar Have you ever been in a situation where although you have the competency to perform a task you are unsure what the totality of the task might be? This situation can arise when numerous regulatory requirements are imposed on an organisation and further exacerbated by the almost exponential increase in the velocity of change of these requirements.

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