Cyprus: a post-Brexit stepping stone for fund managers?
7 October 2020: The Cyprus funds industry has been described as Europe’s newest investment fund hotspot. Andreas Yiasemides, partner head of fund services at PwC Cyprus, outlines the opportunities the region can bring potential investors and fund managers.
As Partner Head of Fund Services at PwC Cyprus, Andreas Yiasemides works, in part, on promoting the benefits of the Cyprus fund sector to foreign fund managers, investors and other participants of the fund ecosystem.
“My working life, however, has changed considerably since the pandemic,” he says. “Although I’d usually have a lot of meetings with clients, investors and industry leaders and attend events and conferences, most of this is now done via video conferencing.”
In his position, Yiasemides has a unique view of the burgeoning fund market and how it might develop post-Brexit.
Has Brexit had an impact on the growth of the funds industry?
As the UK gears up its divorce with the EU, the Cyprus fund industry’s defining and redeeming qualities present a strong alternative for UK fund managers wishing to maintain a foothold in an EU jurisdiction. Apart from the excellent business relationships and strong ties the two countries have, Cyprus’ common law stems from English Law, hence it has borrowed a proven mature, efficient and business-friendly legal system. In addition, it is a very important fact that English is the business language in Cyprus.
As a member of the EU and the eurozone, the island also offers a European passport to fund management companies. Many UK-based SMEs offering fund management services have chosen Cyprus as their next destination in order to remain part of the UK. Through the establishment of an EU compliant fund management company in Cyprus and the outsourcing of certain portfolio management functions back to the UK, UK fund managers can retain their access to the EU market and EU investors.
What’s the general outlook for the Cyprus funds industry? How healthy is the market?
It is believed that the sector has not even begun to show its true potential. The introduction of tax and domiciliation incentives for funds and fund managers, the modernisation of procedures and the further reduction of bureaucracy will create even higher growth rates in the sector.
The Cyprus investment funds industry has experienced tremendous growth over recent years and is still growing to its full potential. According to the latest report by the Cyprus Securities and Exchange Commission (CYSEC), the total Assets Under Management (AUM) for the 2nd quarter of 2020 reached €7.97 billion and the Collective Investment Funds managed by Cyprus Management Companies had a Net Asset Value (NAV) of €6.3 billion.
AuM, in particular, have more than tripled since 2012, so we are expecting they could reach €12 billion in the next five years, providing current growth rates are sustained.
The pandemic has of course created a lot of challenges but we’re confident that the local funds industry is going to develop and expand further and become one of the major pillars of our financial industry in the coming years and positioning Cyprus as an ideal funds jurisdiction.
How much of a contender is the industry on a global scale?
While being a relatively new player in the international fund industry, Cyprus managed to differentiate its brand from offshore fund jurisdictions such as the Cayman Islands, the British Virgin
Islands and Mauritius with unrivalled access to European markets and investors.
Although at the moment the sector is not comparable with other EU countries such as Luxemburg and Ireland due to their market size and reputation as mature fund domiciles, we believe that our
product outperforms the ones of Malta and Netherlands.
According to the European Fund and Asset Management Association (EFAMA), Cyprus experienced the highest Net Asset Value (NAV) growth rate at a pan-European level in all categories i.e. total Undertakings for Collective Investments (UCIs), Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS) during the fourth
quarter of 2019.
This shows that the industry was drastically increasing and gaining momentum amongst all the other EU member states in the before COVID-19 era. We are confident this growth will continue after the markets are fully back on track and the consequences of the pandemic are extinct since the Cyprus fund product should be considered by fund managers and investors as a reliable solution and deserves to have a place in the international funds arena.
What’s driven the growth in the Cyprus funds industry?
The global economic crisis of the previous years challenged the Cyprus economy and reduced business demands and aspirations, so professionals sought alternative ways for financing investments at an international scale.
The focus shifted towards collective investment schemes and today, the Cyprus fund sector has proven itself to be one of the most dynamic sectors of the country’s economy.
Developing the sector and achieving this goal has been a long journey for the industry, but with the combined efforts of CySEC (the Regulator), the Ministry of Finance and the Cyprus Investment Funds Association (CIFA), the industry has witnessed considerable progress and growth over the last few years.
Can you identify any key industry trends?
There are a lot of Private Equity investments right now and specifically, investment across the real estate market including residential, student accommodation and commercial portfolios.
There is also an increasing trend of collective investment organisations and fund managers from Asia, India, China, Israel, Africa and the Middle East who are taking advantage of Cyprus' strategic position as a gateway to the European Union. We have also noticed a growing interest from UK fund managers who wish to retain their access in the EU market after Brexit, considering Cyprus as a jurisdiction of choice.
What does Cyprus offer to potential investors and fund and asset managers?
Cyprus is steadily evolving into an internationally trusted destination for the establishment and management of investment funds.
Cyprus offers low set-up costs compared to other EU jurisdictions and simplified procedures in relation to the set-up, re-location and ongoing operation of investment funds. It also provides a legal and stable political environment with a strong network of financial and professional service providers, a competitive legislative and regulatory regime as well as a favourable tax regime.
The country’s strategic location at the crossroads of three continents, Europe, Asia and Africa provides a unique competitive advantage in terms of easy access to high-growth markets.
And as an EU member state compliant with the European regulations and standards, Cyprus is considered a trusted destination providing sterling reputability, high standards of
investor protection, as well as the appropriate corporate infrastructure for fund managers wishing to domicile in Cyprus.