The consultation seeks stakeholder feedback on legislative changes intended to facilitate the establishment and operation of Alternative Investment Funds (AIFs) formed as limited partnerships without separate legal personality (LP).

The proposed amendments aim to eliminate the current requirement that the external manager of an AIF must also act as its general partner. Under the revised framework, the general partner will appoint an external manager, who will no longer be obliged to assume the role of general partner and the associated responsibility/liability.

CySEC specifies that the proposed reform is intended to respond to the limited usage that the LP product has seen in Cyprus, in contrast with other prominent fund-domicile jurisdictions. Cyprus’ most widely used AIF structure has, to date, been the variable capital investment company product.

This reform is expected to:

• Encourage greater use of the limited partnership structure for AIFs
• Create a viable tax-transparent product for AIFs set up in Cyprus
• Provide flexibility in drafting complex carried interest and co-investment arrangements, which LPs are globally used for
• Align with the principle of third-party management

The consultation proposes revisions to several provisions of the AIF Law, including:

• Article 65(2): Clarifies that an external manager, appointed by the general partner, is responsible for management functions
• Article 69(3)(a): Requires partnership agreements to disclose the name of both the general partner and, where applicable, the external manager
• Article 74(1)(h), (i): Transfers the authority to initiate dissolution of the fund from the external manager to the fund’s unitholders
• Article 74(3)(c): Provides that the general partner, rather than the external manager, shall act as liquidator, subject to court discretion
• Articles 75(2)(c) and 75(3): Reflects the updated role of the external manager in supervisory and compliance contexts

Similar amendments are proposed for corresponding provisions applicable to AIFLNPs.

At Harneys, we are proud to say that we have advocated for legislative amendment in this area for a number of years and have in the past presented the case for a revamped LP regime for AIFs to key stakeholders.

We consider the consultation and proposed amendments to be a positive development and key step towards a viable LP product in Cyprus.

The consultation process is now open, with stakeholders, including fund managers, legal professionals, and investors, invited to share their views by 2 July 2025.

CySEC’s press release can be accessed here and the consultation paper CP-02-2025 here.