21 Nov Interview with Andreas Yiasemides, President of The Cyprus Investment Funds Association (CIFA), Cyprus
BF: Cyprus is rapidly evolving into a dynamic cross-border hub for investment funds, with a growing number of funds and managers locating to the island. Assets under management (AUM) have increased drastically from €2.7 billion in 2016 to €10.7 billion in the first quarter of 2023. To start, please give us a rapid overview of the fund industry. What have been some of the key trends that you have observed for the last 5-10 years since the effects of the crisis have been wiped out?
Andreas Yiasemides: Established in 2013 after the financial crisis in Cyprus, The CIFA has become a collective voice and point of reference for all investment fund sector professionals, including custodians, banks, fund managers, fund administrators and tax advisors dealing with funds. We have more than 400 companies and individuals as members.
Our main target is to promote Cyprus as a jurisdiction for the global fund industry, to help with the drafting of the relevant legislation, while working very closely with the regulators and the government to stay up to date with all the latest developments in Europe and worldwide. Whatever is new, we want to have it here. We are working to have updated, flexible and efficient legislation for funds in Cyprus.
The sector has experienced very remarkable growth and there are now almost €10.7 billion in AUM. According to data issued by the European Fund and Asset Management Association (EFAMA), Cyprus is ranked fourth after Luxembourg, Ireland and Malta in term of cross border funds. This means that most of the assets under Cypriot funds are being invested outside Cyprus. Being a cross border jurisdiction is crucial for all the investors that want to invest in Europe.
Cyprus is considered a gateway for investment in Europe. This is important because we have only 10 years of intensive efforts to establish the Cypriot jurisdiction, while Luxembourg and Ireland have been established for many more years. Secondly, even if the percentage of the asset invested in Cyprus is much lower at 25%, the absolute number – the €2.5 billion that has been invested from investment funds in the Cypriot economy – equals almost 10% of the country’s GDP.
This percentage may seem low, but these are cross border transactions; it means that we are attracting investors who want to invest worldwide, but they want to create a fund in a solid jurisdiction, which is crucial – but still there is a big absolute amount invested in the local economy.
It’s crucial for us to be in line with all the latest global fund industry developments and trends and to continue to be a flexible and attractive fund jurisdiction. We want to attract the most reputable and reliable fund managers from around the world. It is not by chance that Mitsubishi UFJ Financial Group (MUFG), one of the biggest financial institutions in the world, decided to base their fund administration in Cyprus.
They already have 200 people here and they will hire about 200 more, which is a big number for Cyprus. We expect more reputable fund management administration services to come here as we have all the conditions in place.
BF: How do you compete with other global locations and what are some of the key factors that have attracted fund businesses to Cyprus aside from the legislation that you mentioned?
Andreas Yiasemides: We are realistic. When we started this effort in 2013-2014, we knew that Luxembourg and Ireland were established fund jurisdictions for decades. We cannot compete with Luxembourg and Ireland for the time being, but we are attracting more and more fund managers.
We believe that one day we will be very comparable to these two jurisdictions. However, we identified that 65% of global fund managers are considered small to medium fund managers, and the cost is crucial to all these fund managers. The cost of having a fund in Cyprus in both the setup and operational costs is much lower than in Luxembourg and Ireland. This is not because we compromise on the level of professional services, but because generally labor costs of enterprises are much lower than the European average.
We identified these fund managers and targeted this group that doesn’t want to go to Ireland or Luxembourg. Our goal is to attract these fund managers. Maybe, later, if we feel strong, we will compete at the same level as our two rivals, but we want to be realistic. We started 10 years ago and are doing extremely well as we now have big names now in Cyprus, but we are not at the level of Luxembourg, having more than 50-60 years of history in investment funds. We are targeting to be there by attracting fund managers of small to medium size who are cautious about all their costs and the expenses that they have to incur. This is our strategy.
The benefits of coming to Cyprus includes cost, which is crucial and the geographical location. We are at the crossroads of three continents and aim to attract investors from the Middle East, Africa, and Asia that want to invest in Europe. Having their location in Cyprus, an EU member state, that has transposed all EU directives into local legislation, is ideal for them. If you create a fund in Cyprus, you don’t need another license in any other European country to make an investment or to attract investors. This aspect is critical for all the non-EU fund managers including those from the US, Middle East and even India. We have seen fund managers from Dubai that they want to create a structure in Cyprus. This is another benefit.
We have a favorable tax regime especially for the fund managers. There is an additional element of tax relaxation if they create a fund structure here, provided that these fund management companies are owned by foreigners. It’s not available for Cypriots. Last but not least, since we are considered as a center of excellence for financial services, we have all the professional services in place to help the fund ecosystem utilize high quality service at very competitive prices.
BF: How instrumental has The CIFA been in the development of Cyprus’ investment fund industry and how would you assess your contribution? What have been some of the main programs, key projects, milestones and accomplishments over the past decade or so?
Andreas Yiasemides: When we started, we didn’t have the funds to make any advertising or marketing campaigns, we didn’t have the proper legislation. The first thing that we started to work on was to create the proper legal and regulatory framework. We also tried to find money to bring in a very big law firm to assist with drafting the legislation and this was a milestone.
In 2014-2015 we engaged a very big international law firm, a British one based in London who came to Cyprus for two months to go through the legislation for funds, and to give us recommendations on how to revamp the legal framework. They came back with 200 pages of recommendations of which we have adopted about 95%. We created a modern legal and regulatory framework.
This was an important milestone for us because if we didn’t have the legal, regulatory framework we couldn’t do any marketing campaigns, we couldn’t promote Cyprus as a Funds jurisdiction. Since then, we started promoting Cyprus outside the country. We have been to different forums in Hong Kong, Sweden and the US, as well as anywhere else in the world where there are decision makers.
We have 11 technical committees in The CIFA, including a legal committee, tax committee and a HR committee. We hold specific seminars for our members when anything new comes up regarding funds. At the same time, we work very closely with the regulators, with the Ministry of Finance to speed up any new legislation that is necessary for the fund industry.
BF: To what extent is The CIFA focusing on and prioritizing ESG incorporation into Cypriot portfolios, and how are you trying to influence the funds in this regard?
Andreas Yiasemides: We consider ESG a necessity and there is increasing interest from investment fund managers who want to be considered green, environmentally friendly or socially friendly in the ESG aspect. There are specific funds that invest only in green projects. This is crucial, and very important. It’s something we promote and support. Every fund manager needs to consider ESG to make the funds attractive for the investor. We want to transpose these new directives into local legislation to have a tool to feel more responsible towards ESG.
BF: What is The CIFA’s narrative when it comes to promoting the industry and what are some of the main arguments you advance to the global asset management and investor community?
Andreas Yiasemides: The benefits of Cyprus are the low cost, tax regime, attractive and efficient legal and regulatory framework. Besides, our regulator is next to the investors. They feel from our point of view the regulator is there to establish and keep the rules. But if the fund managers want to have an open discussion with the regulator, this is allowed. There is no issue in Cyprus. We just consider this good for the investor.
We have a strict, but open regulator which is an important aspect, as is being in the EU. If I am in Cyprus, then the fund is in the single European market. You don’t need to spend money and time to get another license. If you want to perform an investment in Germany or in France, you can have your fund in Cyprus at a lower cost and make the investment as a normal fund.
An important project we are working on is that a Cyprus investment fund can now be visible in all the major global platforms such as Bloomberg, Thomson-Reuters and Clearstream. It is important for the funds to have visibility and for the fund manager to have this tool to attract investors, because funds are more visible if you have them on a global platform.
BF: How is The CIFA working to promote talent development specifically in the financial services and fund and industry? What are you doing to raise financial literacy and technological literacy?
Andreas Yiasemides: We have signed MoUs with universities in Cyprus and have very close cooperation. We arrange presentations for students as funds are a new development here. We want the students to know there are specific and promising career prospects in the fund industry. We want them to understand what a fund is, what the mechanisms are, and what the operation of funds is like.
As to the technological aspect of funds, there are specific technological requirements. It’s part of our presentation because it’s very crucial to the fund industry. For example, you may have a fund that is doing one million transactions per day. You cannot have a manual reporting of these transactions. You need to have technology and you need to have a proper software system. You cannot work without the latest technological tools, hence our technology committee.
BF: How do you see the future fund industry and what are some of your latest ambitions while at the head of The CIFA?
Andreas Yiasemides: We have managed to achieve a lot in the last 10 years, but there is still a lot to be done. We now have all the clearance in place, so need to be outside the country to promote Cyprus. We need to increase our missions in other countries. We have targeted specific countries.
We aim to double AUM in a few years and also want to have a global custodian here. We are trying to convince small- to medium-sized US custodians to establish a presence. If we can achieve this in addition to Mitsubishi and other big names, then the sky is the limit.