Wishful Thinking or Real Potential?

Cyprus needs to do more if it is to become a major player in the global fund Industry 

Christopher Stuart-Sinclair has almost 40 years of experience in various aspects of financial markets, much of it acquired in the international fund industry. He participated in the growth of the Luxembourg fund market from something almost anecdotal to its current status and dimension. Moreover, he set up and managed one of the first money market funds under the first UCITS Directive. Today he is Director of Compliance and Regulatory Services at IQ Solutions, Luxembourg. While in Cyprus to address the International Funds Summit, he offered some straight-talking advice about what the country needs to do if it wants to become a serious funds industry player.

By Voula Loizou

Gold: It is claimed that the Cyprus investment fund sector has the potential to develop into a multi-billion euro industry. Do you believe that this is achievable, particularly in the current economic climate?

Christopher Stuart-Sinclair: I don't think the current economic climate differentiates things. The thing to bear in mind is that there is a lot of liquidity available and, at the same time, rates of return are quite low. Now, whether Cyprus could become a multi-billion industry in the short term depends how ambitious, how organised and how successful those in the industry can be. But certainly there is no reason why this country can’t have a part in that move from dormant savings to productive investment and make the most of being part of the EU and reap the benefits of Capital Market Union. Cyprus has to be able to define what makes it special and create the perception that it is also a competent, efficient, and cost-effective jurisdiction.

Gold: The enactment of the new Alternative Investment Funds Law and the UCITS IV Directive are the latest in a long line of efforts aimed at transforming Cyprus into a true financial jurisdiction. What else can be done to establish Cyprus as an Investment Fund Centre in Europe, and which markets should it target?

C.S-S.: One thing is to look at what you have in terms of product or activity. Mention has been made in Cyprus of High Net Worth Individuals and private funds but there is a lack of clarity around some aspects, possibly a legal status for family offices, for instance, or Trusts. In addition, do you even regulate service providers who have additional cash to offer investors abroad? These are small details and they are not fundamental but I would say that it might be a good idea to look at the whole armoury of funds available and perhaps simplify it a bit and see if there is anything that needs to be added. Overall, Cyprus and its investment products needs to be presented as a very simple, straightforward, easily understood and non-specific proposition.

Gold: Does the new legal framework offer a competitive advantage to Cyprus? 

C.S-S.: Not specifically. I think Cyprus has to look elsewhere for its competitive advantage because, being part of European law anyway, the transposition in Cyprus was mandatory and inevitable, in a context where Europe is going to have a level playing field and similar rules for everybody. I think you need to look at what makes up the right combination of products and structures for you and your target markets in the region.

Gold: What makes Cyprus an attractive funds jurisdiction to international investors?

C.S-S.: At the moment? Not very much, because it is coming from a low base. However, Cyprus has very special relationships with certain countries that have been traditionally hard to develop. The Russian Federation may not be the flavour of the month at the moment and it may pose specific problems but ultimately Cyprus has 50 years of history of dealing with Russia. You don't get that expertise over night. There are other cases in other regions – in the whole of the CIS region, in fact – that don't necessarily all have the same problems. There is also the country’s proximity to the Levant and the Gulf. Those are the things that Cyprus can leverage and needs to leverage going forward. Private individuals who are looking for such proximity will see that Cyprus has a competitive advantage over other jurisdictions. And I have to add that, obviously, Cyprus does have a very well-educated workforce, reasonable prices and a very high level of technical competency and qualifications – I think it has one of the highest levels of trained accountants in Europe, and there is also a large Cypriot diaspora of professionals who have gained experience in financial markets around the world and could be attracted back if the circumstances and growth of the Cyprus market were more attractive. So the building blocks are definitely there, including that all-important human capital and, of course, the language is English.

Gold: How does Cyprus compare to other European countries with regard to attracting both professional and retail investors?

C.S-S.: For individuals, I think it will take a long time because clearly we need to reach a stage where a UCITS in Cyprus is considered an advantage. For institutional investors, it compares well by being an efficient, flexible, business-friendly jurisdiction, with all the quality service offerings around it.

Gold: What types of funds do you see as potentially being the most successful in Cyprus and why?

C.S-S.: Private funds for High Net Worth Individuals and Family offices. I would think there is room for standard IFs in terms of private equity and real estate for investment in the region because your administrators understand these markets better and are more aware of bankruptcy laws, etc. Beyond that, one of my own obsessions is Asymmetric Funds where you can split assets into categories and different investors have different terms. That is something worth exploring because it will potentially allow you to sell solutions and not just investment plans. And once you start getting traction, you could offer an efficient, cost-effective, quick market solution with good distribution support mechanisms behind it in terms of administration.

Gold: How can investment funds help speed up Cyprus’ economic recovery?

C.S-S.: I think, basically, by what they can generate in terms of employment, secondary investment, revenue and also a positive image. If Cyprus is seen as being a Financial Centre, a lot of the restraints that may hold back other economic activity could fall away, I can see a lot of advantages that could be significant in helping Cyprus’ economy to recover and grow