In principle, the European passport offers the fund management industry exceptional possibilities for cross-border and global fund distribution and could attract both EU and non-EU firms keen to establish themselves as EU-compliant managers and to access European Union investors from Cyprus. As a private investment Group operating out of Cyprus since 1990, Emergo knows a thing or two about the benefits of doing business in Cyprus.
Operating out of Nicosia for close to three decades, we built a significant portfolio of venture capital and private equity investments, in Russia, North America, Europe and Asia. In 2014, we established the first umbrella of Alternative Investment Funds (AIF) for retail investors, aimed at providing cost-effective investment options for institutional and private investors alike.
We remain convinced that Cyprus will serve as an excellent location for establishing and promoting funds internationally.
Can Cyprus based Fund Managers succeed?
As of July 2017, the European fund management sector boasted €15.1 trillion in assets under management (AUM), withan impressive 6.5% growth in the first 7 months of the year. The growth is even more impressive when set against a backdrop of low market returns, and increasing pressures on fees and a substantial increase in regulatory and reporting costs. US Fund managers totally dominate the global fund industry (managing 82.9% of AUM), but fund managers, with only 3 European managers managing over $1 trillion.
There are early signs suggesting that the Cyprus investment fund sector can capture its fair market share and develop into a significant fund management jurisdiction. This is largely based on the country’s key advantages that include lower costs and a strong community of professional service providers. The regulatory framework is largely based on that of sector leaders, Luxembourg and Ireland and already AUM have tripled since 2013.
Our own experience is a case in point. Built on the principles of diligent risk-based portfolio management and unparalleled investor transparency, Emergo’s Luctor AIFs have been met with unmitigated success, reaching their initial target set well into the 7-digit range within months of their launch. State of the art online technology tools and marketing to investors across the EU under the AIF Managers Directive, mean that fund managers based in Cyprus can compete and be successful in attracting investors from the European market and beyond. Importantly, a combination of a web-based investor platform, robust process and data security, low investment and administration costs make these Cyprus based funds accessible to a very large number of institutional and private investors from Europe and beyond.
Investments in Private Equity, Real Estate and Infrastructure, to name a few, are excellent targets for the industry and are set for accelerating growth in the next decade. There are a large number of investment vehicles and expertly managed funds available where foreign investors can benefit from the many advantages Cypriot funds and fund managers have to offer. Conversely, Cypriot funds and fund managers can look to Europe and leverage their infrastructure and technology to capture a share of the larger investor base, while at the same time gaining access to new technologies and services not available in their home market. Local institutional investors, like pension funds, should be the first to benefit from the increasing availability of appropriate Cyprus domiciled funds for the reasons outlined above.
The role of the Fund Industry Stakeholders
The Cypriot regulatory framework favors the use of local service providers such as fund depositaries, and while protectionist measurements should be used with care in the European theatre, the trust and confidence placed in local service providers should be mirrored by local institutional investors. After all, if Cypriot fund managers are unable to gain the trust of the institutional investors in their own marketplace, what chance do they have in the broader market?
To maintain, or even accelerate the growth in the Cypriot Fund Management Industry’s AUM, consideration should be given to the following steps that could, or should, be taken to support and facilitate the growth of AUM in Cyprus:
1. Accelerate the much-anticipated update of the legislative and regulatory framework; authorities must ensure that costly delays are avoided.
2. Ensure that the regulator has the resources it needs to provide effective and timely regulatory oversight.
3. Provide support and uniformity through the provision and use of a standardized template library to expedite and improve both the fund authorisation process and the ongoing monitoring.
4. Provide legislative support or lobbying to ensure that protectionist measures do not form an impediment to European access for Cyprus- based fund managers.
CIFA can be instrumental in the design and implementation of these measures, promotion is an important step in the process, but it is implementation that creates a sustainable success story.
Authors: Dr. Mike F. Balm, Chief Executive Officer of Emergo Wealth, Dr. Constantinos Neophytou, Managing Director of Emergo Wealth.
Dr. Balm is the Chief Executive Officer of Emergo Wealth. He has been with the Emergo Group for over 25 years and he has held several positions, including Group treasurer and CEO. In addition to his executive duties, Dr. Balm currently serves as a director of various US, Canadian and European holding and operating companies.Dr. Balm is a Chartered Management Accountant and Chartered Global Management Accountant (UK), a Certified Management Accountant and Chartered Professional Accountant (Alberta, Canada) and a Certified Public Accountant (Delaware, US). He holds a Master in Business Administration (University of Manchester), and a Doctorate of Business Administration (European University of Switzerland).
Dr. Neophytou is the Managing Director of Emergo Wealth and has been with the Emergo Group for over 15 years, where he has held various roles, including that of Managing Director of Emergo Cyprus. He previously served as the Vice President for Yasoo Health Inc., a nutraceuticals Company and as the Managing Director of Bionature, a drug discovery Company. Previously, he worked as the General Manager of an equity brokerage business in Nicosia. He serves as a Special Finance Advisor to the European Commission.He held the Welcome Prize post-doctoral research fellowship at Harvard Medical School in Boston. He is a Certified Investment Management Analyst (CIMA®), and holds a Diploma in Company Direction (IoD, UK) and the CySEC Advanced certification. He studied on full merit-based scholarships at Cambridge University (BA, MA) and at University College London (PhD).