Private equity Investments risk management

• The Cyprus private equity investment fund will invest in low-risk / low-return investments with predictable cash flows especially for those investors who are risk averse, by choosing relevant low risk compartment – relevant class of shares;
• The Cyprus private equity investment fund will invest in low moderate-risk / moderate-return investments in companies that require some form of value added element especially for those investors who are ready to accept an element of risk, by choosing relevant moderate risk compartment – relevant class of shares;
• During the private equity investment process decision, private equity investments are carefully selected by adhering to a thorough investment process that includes extensive due diligence and market research. As part of the Cyprus investment Fund due diligence process, on each prospective private equity investment, a feasibility study together with a business valuation is obtained.
• Monitor investments market volatility at all times, examination and analysis of the long-term economic and business fundamentals and examination of financial strength.
• Liquidity risk private equity investment monitoring is intended to minimize the risk that Cyprus private equity investment Fund would not be able to satisfy its obligations without negatively affecting its net asset value if it is hit with a high number of redemptions during periods of adverse market situations. Marketability analysis, Sensitivity on marketability of the Fund’s assets is performed semi-annually by the Risk Manager, who reports to the Board of Directors regularly assessing the effectiveness of liquating the private assets.
• A stress test is performed semi-annually by the Risk Management, making assumptions about potential declines in the value of the Fund’s assets or lower investment yields compared to historically observed patterns and generally looks at the “what if” scenarios necessary to detect vulnerabilities. The outcomes of stress tests are used to develop effective contingency plans.
• Liquidity limits: liquidity limits are set and regularly monitored by the Risk Manager, for example limits to loan-to-value ratio, debt-service-cover ratio or maximum number of redemption requests to be processed per specified period). These are aligned with the private equity investment strategy, liquidity profile and redemption policy.
• Private equity investment budgets and cash flows: Private equity investment budgets and cash flow projections are drafted by the Private Equity Management, based on income and incoming funds (applications) and expenses and outgoing funds (redemptions) provided by the Administrator who assesses and reports potential liquidity problems. The Risk Manager validates the data included in the budgets and cash flow projections.
• Hold non-executive board seats in material private equity investments (material investments are those private equity investments for which more than 10% of the Fund’s assets have been invested).Through these seats, the Directors can actively and directly influence the operational and strategic decision making of the Cyprus Investment Fund. In particular, Directors should be seeking a seat in the Boards of the Fund’s investments when:
  1. More than 10% of the Fund’s assets have been invested in the specific private equity investment; or
  2. More than 20% participation is held by the Cyprus Investment Fund in the specific private equity investment.

Compliance and Cyprus regulatory bodies

• The Cyprus Securities and Exchange Commission may in circumstances of misconduct take enforcement action against the Cyprus Investment Fund or any person engaged in the activities of the Fund.
• The Fund is required under the Cyprus Alternative Investment Fund Law to:
  1. Prepare an annual report that is audited by an independent auditor and confirms that throughout the relevant period the Cyprus Investment Fund has complied with section 114 of the Cyprus Alternative Investment Fund Law.
  2. A copy of the audited financial statements shall be provided to the Cyprus Securities and Exchange Commission in compliance with the requirements of the Law.
  3. The Auditor also furnishes annually to the Cyprus Securities and Exchange Commission (CySec) a written report stating whether in his opinion and to the best of his knowledge, the Cyprus Alternative Investment Fund has complied with all relevant Cyprus laws and regulations.
• On-site inspections may be conducted by officers of Cyprus Securities and Exchange Commission (CySec)
• The Cyprus Investment Fund at all times must submit with the Cyprus Securities and Exchange Commission:
  1. Articles and Memorandum of Association
  2. A detailed procedure manual
  3. Private Placement Prospectus
• The private placement prospectus, constitutional documents, procedures, investment policies or any other related shall not be amended prior to the approval of the Cyprus Securities and Exchange Commission.
• The Cyprus Fund in accordance with the Cyprus Alternative Investment Fund law to appoint an Internal Auditor. The Internal Auditor reviews and evaluates, at least on an annual basis, the appropriateness, effectiveness and adequacy of the Company’s policies, practices, measures, procedures and control mechanisms applied for the Cyprus Investment Fund.
• The Cyprus Investment Fund is required to appoint a Risk manager officer to define and monitor of possible risks which could adversely affect the operations of the Fund and categorization and classification of such identified risks, according to their nature and form, probability of occurrence, potential implications and severity;
• The Cyprus Investment Fund is required to appoint a compliance officer to allocate the appropriateness and the limits of responsibility of each department, to develop and establish acceptance policies, to monitor and assess the correct and effective implementation of the Internal Operating Rules, (e.g. on-site visits to different departments which will provide him all the necessary information for assessing the level of compliance of the departments and employees with the procedures and controls which are in force.

Investor’s information

In accordance with the Cyprus Alternative Investment Fund law the Cyprus Fund shall provide to the Investors with:

• A half-yearly Report statement, within two (2) months of the end of each half-year, showing:
  1. the Balance sheet at the end of the period
  2. the number of Participating Shares in issue
  3. the Net Asset Value per Class of Share and the Net Asset Value of the total holding per Participating Class of Shares;
• An Annual Report for the Fund within six (6) months of the end of such Financial Year. This Report will include the audited financial statements for each Financial Year together with an Auditor’s Report, a confirmation of the shares in issue, a confirmation of the Net Asset Value and the Net Asset Value per share and confirmations on values used for calculating the performance fee, management fee and administration fee;
• Evidence of title to shares at any time upon the shareholder’s request;
• Statement of current holdings at subscription date and once every 6 (six) months. The written report contains all requisite details of the transactions executed for the Investor and is prepared by the Administrators. Investors report consists of the following parts:
  1. The valuation of the Company’s class of shares invested and its performance during the reporting period;
  2. The total amount of fees and charges incurred during the reporting period, itemizing at least total management fees and total costs associated with execution
  3. Other relevant information, the number of shares held/ issued/redeemed;
• The Fund shall make available to each investor, free of charge, the prospectus of the Fund, its rules or instruments of incorporation and its latest annual and half-yearly reports and shall disclose to the applicant the latest net asset value of the Fund or the latest market price of its units, before signing the application for subscription.

Other investor’s safeguards

• A Cyprus Fund is an EU and OECD approved tax regime fund.
• The Cyprus Alternative Investment Fund Law is a fully EU harmonized and modern funds legislation