Just A year since the financial crisis, Cyprus is showing early signs of recovery.
The banking sector’s core liquidity and lending capability have been dramatically reduced by the effects of the economic downturn, but Cyprus must expand its alternative financing base to spur future economic growth and fill this interim void, capitalising on its already well-established investment funds framework.
The alternatives to bank financing in Cyprus pose a new opportunity for Cyprus to grow its foreign investor base and stabilise the country’s real economy.
Some 98 international collective investment schemes (Icis) funds – alternative investment fund types – currently operate in Cyprus. They hold a total of €3 billion of assets under management.
The funds’ framework has maintained its credibility, with new funds incorporated between December 2012 and December 2013 representing a year-to-year increase of 76% of assets under management with a value of more than €1 billion.
This was the same year Cyprus suffered its worst recession in its history. Recently, there have been new registrations of Ucits funds under the European Union’s Ucits IV directive that have also been listed at the Cyprus Stock Exchange.
A tax-efficient EU jurisdiction, the benefits for domiciling in Cyprus are obvious. But in 2013’s wake, a transparent regulatory system is the key driver of investor confidence.
The Cyprus Securities and Exchange Commission is fully compliant with Ucits IV and the Alternative Investment Fund Managers Directive. Cyprus transposed these European regulations into national law, offering a robust European legal framework for the fund management industry.
While Cyprus will remain a fully passportable domicile for cross-border and global fund distribution, where do the investment opportunities lie in Cyprus?
The development of the country’s funds industry runs parallel to the comprehensive privatisation programme underway.
To meet the requirements set by the Troika roadmap, key semi-state-owned enterprises are opening up to foreign capital, providing opportunities previously closed to international investors. This is financial crisis conditioning economic development.
Alternative financing will play a crucial role in privatising Cyprus’ national port authority, telecommunications and electricity companies.
Introducing competition and producing a return on investment will feed the real economy where Cyprus’ banks may currently struggle to do so.
The exposure of banks to problematic loans made to real estate contractors, many are non-performing, means the core banking sector can not yet drive real growth.
This challenge has created an opportunity for funds. The European Bank for Reconstruction and Development’s decision in May to invest between €600 million and €700 million in corporate restructuring and financial assistance to small- and medium-sized enterprises shows how far Cyprus has come in a year.
There is now a demand for international debt and equity investors to enter the Cypriot market to meet the newfound supply of liquid and distressed assets which have emerged since the recession.
Developing the alternative funds framework is a challenge for the fund and asset management community in Cyprus, but in a global market starved of long-term yield, it crucially provides an opportunity for investors via collective investment schemes and alternative investment funds.
This will form the foundation to the Cypriot economy by enhancing the liquidity of its financial institutions and maintaining a sustained recovery. The Cyprus Investment Funds Association, the partner organisation to the Cyprus Investment Promotion Agency, is committed to making this opportunity a reality.
Angelos Gregoriades is the chairman of the Cyprus Investment Funds Association
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