CIFA: Why Cyprus is recognised internationally as an emerging fund jurisdiction
Adonis Adoni 13:17 - 01 March 2023
2023 marks the 10th anniversary of the Cyprus Investment Funds Association (CIFA) and here, CIFA President Andreas Yiasemides looks back at how the local industry has evolved into an emerging fund jurisdiction and talks about forthcoming trends and new opportunities.
This year marks the 10th anniversary of CIFA’s establishment. How has the local funds industry developed over this decade?
CIFA was established in February 2013 and registered as an Association in April the same year. Its purpose and aspiration was to become the collective voice and a reference point for all professionals and legal entities offering services or engaging in the fledgling investment fund industry in Cyprus. In addition to being a member of the International Investment Funds Association, CIFA has been a full and active member of the European Funds and Asset Management Association (EFAMA) since 2016 and is an Associate Member of the International Capital Markets Association. It also has a Memorandum of Understanding on best practices and capacity building with the UK-based Chartered Institute for Securities and Investments (CISI).
Ten years ago, we started the collective investments sector by hiring international firms with global expertise. Their task was to suggest how to attract international stakeholders in this very competitive sector to Cyprus, through an effective and attractive legal and tax framework. Despite turbulent times and the difficulties we have had to deal with, especially in recent years, we were able to create a rapidly growing ecosystem with the support of the Government through the Ministry of Finance, the contribution of the Cyprus Securities and Exchange Commission (CySEC), and the tireless efforts of the private sector. As a result, the investment funds sector in Cyprus has grown into one of the most promising in the local economy, with Assets under Management (AuM) of Cypriot investment funds amounting to €9.8 billion at the end of the second quarter of 2022. For a country with an annual GDP of approximately €22 billion, the sector’s importance is immediately evident, especially when almost a quarter of those assets are invested in various sectors of the local economy. We are optimistic that the sector’s rate of growth will continue. As CIFA, we are committed to maintaining its good reputation, professionalism and comparative advantages.
With approximately €10 billion in total assets under management, the Cyprus funds industry has clearly remained resilient, despite back-to-back financial crises caused by the COVID-19 pandemic and the war in Ukraine. Has CIFA taken specific measures to protect fund managers and ensure the stability of the industry during these difficult times?
Since 2014, dozens of fund managers from various geographical areas have chosen Cyprus, recognising its advantages as a fund jurisdiction. Over the last decade, we have concentrated all our efforts on making Cyprus an ideal destination for funds and fund managers. Helping create a modern and competitive tax system, maintaining an updated legislative framework, and providing access to markets and capital are our top priorities. Cyprus is continuously gaining attention in the world of collective investments because of its ideal business environment, ease of doing business, access to international fund administrators, custodians and brokers, well-educated and English-speaking talent, and relatively low set-up and maintenance costs. The outbreak of the war in Ukraine, the sharp rise in inflation and interest rates, and the resulting slowdown in economic growth led to a sharp fall in the bond and stock markets in 2022. According to EFAMA, this resulted in an 11.8% decline in total AuM during the first nine months of 2022. In times of global turmoil, there isn’t much we can do on our own. Certainly, we are not complacent; we learn from recent developments and try to find ways to respond in the best possible way. The sector in Cyprus has proven its resilience during the COVID-19 pandemic and the war in Ukraine. We are optimistic that, despite the difficulties, the investment fund sector will remain strong and continue to grow.
Which local sectors and businesses have funds been investing in, and what percentage of the total assets under management do they represent?
According to the latest statistics published by CySEC, at the end of the third quarter of 2022, of the total 208 Collective Investments (UCIs), 166 invested partially or entirely in Cyprus, which amounted to €2.4 billion or 23.8% of the total AuM. Of those, 69.3% were funnelled into private equity – education, shipping and energy, among others – and 12.4% into real estate.
A number of big players from the United States are said to have expressed interest in the Cyprus funds industry. Are there any new developments to report on this?
The USA is a priority market for CIFA, since US-based investment funds can use Cyprus as their base for investments both within the European Union and in the countries of the broader geographical region. Currently, there are ongoing discussions with fund managers based in the US and we are optimistic that, eventually, we will convince them to choose Cyprus as their preferred jurisdiction in our region.
Is CIFA currently working on specific initiatives/projects to further promote Cyprus as an attractive destination for fund managers?
Today, Cyprus is recognised internationally as an emerging fund jurisdiction. We are very proud that the country was selected to host the International Investment Funds Association (IIFA) annual conference in 2023. CIFA will welcome IIFA members from 40 countries, including the USA, Canada, India, Japan, Korea and EU member states, with AuM exceeding US$71 trillion. This is a great opportunity to display Cyprus to the major players in the sector and convince them that our country compares favourably with any other EU jurisdiction. CIFA will continue to submit suggestions and proposals for the continuous modernisation of the legal and tax framework governing collective investments, as it is a highly dynamic and competitive sector, marked by constant developments at an international level. For example, the approval of the proposed legislation regarding the supervision and regulation of the fund administration services profession is of great importance to the sector and the sooner it is approved, the better for the jurisdiction. As the Cyprus funds sector becomes more established and international recognition grows, the opportunities for highlighting our jurisdiction’s advantages will increase. In 2023, we will continue our efforts to promote our country at various events and forums in countries and regions where we believe there are opportunities to attract more funds and fund managers.
On the connected issues of sustainable finance and green investment, regulatory uncertainty has given rise to a certain amount of ‘greenwashing’. What, in your view, needs to be done to safeguard the integrity of the industry?
In my opinion, it is not a matter of regulatory uncertainty but mostly of regulatory adjustment, much like the introduction of VAR technology in football! The increase in sustainable investing was necessary for the sake of the planet and society. There will always be various forms of ‘greenwashing’, no matter how clear or strict the regulations are. What is important for investment funds and fund managers is to use third-party rating systems to evaluate a company’s or a project’s environmental and social impact before deciding to invest and during their investment. Investment funds can employ several practices to promote sustainability. For example, they can screen for companies that meet certain ESG criteria and avoid those that do not. This may include avoiding companies that engage in activities that are harmful to the environment or have poor labour practices. Investment funds may also seek out companies that have a positive societal and environmental impact. This could include investing in renewable energy, sustainable agriculture or affordable housing. In addition, investment funds may engage with the companies in which they invest to encourage them to improve their ESG practices. This could include voting on shareholder resolutions related to sustainability or having direct conversations with company management. Another practice is to integrate ESG factors into their overall investment analysis and decision-making process. This means that they consider ESG factors alongside financial issues when making investment decisions. Finally, investment funds may provide their clients with transparent information about their sustainability practices, including the companies they invest in, their ESG criteria, and their voting records.
(This interview first appeared in the February 2023 issue of GOLD magazine. Click here to view it.)