One of the key issues constantly monitored and assessed by many non-EU fund managers is whether it makes sense to establish a European Management Company. There are related reasons for such considerations; first, the difficulties associated with utilising the private placement regimes, and second, the recognition that even if or when the AIFMD marketing passport is extended to non-European fund managers, there is likely to be a period of uncertainty of the application and approach to be followed – and which in any case demands full compliance with the AIFMD requirements. As such, establishing a European Management Company may seem the more attractive solution. In this respect, the Cyprus fund ecosystem offers a vast network of professional service providers and administrators of international calibre, qualified human capital, and a favourable legal environment for management company domiciliation.

Management Company Platforms

Another solution is the use of Management Company platforms, which are currently the most popular means of gaining entrance into Europe. This trend is on an upward trajectory with the number of platform providers growing in Cyprus and across the rest of Europe.

The fund hosting platform solution provides investment managers access to a fully authorised UCITS/AIFM entity (‘the host’) and thus the ability to market their funds within the EU, without the need to establish their own fund umbrella and/or management company substance in an EU Member State. The host usually maintains the risk management function as well as all the other control functions and middle and back-office support services. Portfolio management may be offered or outsourced in accordance with the prescribed regulatory conditions, as further described below.

Consequently, the host maintains the ultimate responsibility for the structure and managers or entrepreneurs benefit from the efficiencies provided by the host’s pre-existing structure of the platform in terms of sharing costs, existing middle and back office operating models, tried and tested systems and speed to market. It should be noted that third-party platforms are often accompanied by umbrella fund structures, which allow investment managers or promoters to join their umbrella by creating their sub- compartment(s), which are dedicated to their own investment strategies.

Efficient Strategy

In addition to the benefits of appointing an external Management Company as listed above, is the added advantage that the interested manager could either appoint a person within the Management Company to manage their compartment or participate in the Investment Committee established for their compartment, or even enter into a sub- advisory/management relationship when joining a platform where the Management Company delegates the portfolio management function back to the manager – assuming that the manager is authorised for the purpose of asset management and subject to the supervision of the competent authorities of its home country; or where the delegation is to third country undertaking, a cooperation agreement is in place between the Cyprus Securities and Exchange Commission (CySEC) and the competent authority of the third country. At the same time, that manager can have their fund marketed in the EU in full knowledge that all the regulatory and compliance requirements are taken care of by the external manager, so that they may focus on running their strategy successfully.

Host Services Offering

• Risk Management
• Capital Introductions
• Marketing in the EU
• Regulatory Compliance
• Advisory Services
• IT Infrastructure & Support
• Business Model Review

Key Benefits:Fund Hosting

• EU-compliant structure to facilitate EU marketing and capital raising
• Quick set up, economies of scale and cost optimisation
• Access to investor base and capital introduction
• Existing arrangement with service providers
• Operational expertise
• Time to market and focus on investment decisions

Read the 2024-2025 CIFA Investment Funds Guide

November 2024