By: Antonis Antoniou
Cyprus’ professional services sector seems to be underway for critical changes. Not just because of stricter compliance rules and a driving force towards new markets such as the United States but also because a new sub-sector is emerging: that of investment funds.
An organized effort to attract investment funds and funds administrators has been underway for the last couple of years and it seems that it has started bearing positive results since the number of funds registered in Cyprus and the value of their assets keeps rising. According to Cyprus Securities and Exchange Commission (CySEC) (https://www.cysec.gov.cy/en-GB/home/), in the 1st quarter of 2019, the assets under management of Management Companies and Undertakings of Collective Investments rose to $7.5B (€6.7B), an increase of 7% compared to the previous quarter.
The number of these organizations rose to 187 for the same period, out of which 118 are active. The numbers might not be impressive when compared with other fund management centers in Europe, such as Ireland or Luxembourg but the increase is significant for the country’s professional sector since until recently, the funds' industry didn’t even exist.
It was only after a joint effort from both the public and private sector that the necessary legislation and regulation rules were adopted and the foundations for the development of the sector were laid. In addition, the Cyprus Investment Funds Association was created at the time and the effort to attract funds and fund managers to the Mediterranean island kicked off. The result was positive but the best is yet to come.
Experts from the professional services sector are confident that the value of the assets under management of funds registered in Cyprus will increase significantly in the coming months. They are so optimistic that they estimate that the value of the funds’ assets will surpass $11.2B (€10B) by 2020.
There’s cause for their optimism as currently, a significant number of funds is in the pipeline for a license from CySEC and most importantly, it seems that some of them manage assets of significant value.
Brexit will definitely be one factor that will help the enlargement of the sector in Cyprus, even though there weren’t any huge funds that relocated to Cyprus after Britain’s decision to exit the European Union. Ireland is a much-preferred destination for many reasons.
Besides Brexit, Cypriot professionals are trying to take advantage of other international developments as well. For example, there is an increased interest to register in Cyprus, from investment funds that until now were based in destinations such as the British Virgin Islands and the Cayman Islands.
The regulatory framework in these destinations is changing and as a result, a bigger physical presence is demanded. It might be easy to have a fund registered in a distant destination but when one is asked to have a physical presence in that place, it becomes a different story.
Another reason that aided to the increase of assets under management is that funds which were licensed a few months ago have now started concentrating money to create their investment portfolio.
Fund administrators considering relocating to Cyprus will see both advantages and disadvantages. On the cons list: Cyprus is still a rookie player in the sector. Also, it is located far from the main European markets and there aren’t any big international or custodian banks. On the pros list: Cyprus has a good professional services sector; new laws and regulations are on the way to be adopted, and most importantly it’s much cheaper than established funds destinations.
Professionals with insights into the sector, point out that Cyprus will not become a huge funds destination soon, but all the necessary tools are there for the country to keep getting a bigger piece of the pie. And the pie is quite big. The European Fund and Asset Management Association stated that at the end of 2018, the total net assets of European investment funds reached $17T (€15.2T).