Closure of Cyprus CIP “a Great Travesty”: 10 on the Weekend – Steven Pepa

Ten On The Weekend is a semi-weekly feature in IMI, the concept of which is simple: Each time, we ask the same ten questions of a different industry figure, letting readers get to know the interviewee on a more personal and informal level than they might in an ordinary business setting.

Our guest this weekend is Steven Pepa of Saratoga Capital Partners, Cyprus.

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How do you spend your weekends?
I am quite fortunate that I live in Cyprus, for the island has much to offer. Normally, I travel extensively on business and never have much time, but with the COVID lockdowns and flight prohibitions, I have taken the opportunity to reconnect with nature and recalibrate myself. I like to spend my weekends on the beach, trying to become a better swimmer. I’ve pulled out my old mountain bike and restarted rock climbing. Even got back to the gym regularly until they were forced to close due to government restrictions. My cooking is still quite limited, but I have finally learned to do a good barbeque.

What are your top three business goals this year?
2020 was a year of lost opportunity. When my colleagues and I conceptualized our Saratoga private equity fund in 2018, we thought it would be a terrific opportunity to connect a fund investment strategy with capital raising via the Cyprus citizenship and Portuguese Golden Visa programs. Both jurisdictions at the time had just brought in the requisite capital markets regulatory changes that made a serious PE option possible.

By tying our fund to investment migration, we believed that we could take a long term hands-on approach to our portfolio company investments because our investors would be primarily driven by either citizenship or permanent residency, and not demand the heightened returns that make such deals impossible. 

It would be good for our portfolio companies because we would not need to force them into the very hard rationalization strategies that PE normally does upon acquisition (usually resulting in labor force reductions). Investors would be happy, for not only would they achieve their primary migration goal, but their capital would be used in a conservative fashion, thus better-assuring liquidity and a fair profit on exit.

Although the Cyprus program is now unfortunately closed, Portugal remains quite a vibrant and stable market (especially with the newly announced changes). Our 2021 goals are to build up our new Portuguese fund (which we are still finalizing from a regulatory perspective) and then invest in the Portuguese real economy as I suggested above. 

Fortunately, Portugal allows migration compliant funds to also invest up to 40% of AUM outside the country. This will allow us to slowly move forward with our already existing Cypriot investment strategy (once we build up enough capital reserves).

What is your biggest business concern right now?
Keeping our portfolio targets moving forward. Covid-19 and the ensuing global shutdown of economies have had a disastrous effect on small businesses. Our targets are going concerns with terrific upside but in need of capital infusions to grow and stabilize. Normally, this would be quite easy but, with the present destabilization, it is exceedingly difficult to plan and calculate proper business strategies. Nevertheless, our investment horizons are still clear; just the path forward is a bit difficult.

Which book is on your night-stand right now?
1177 B.C.: The Year Civilization Collapsed by American archaeologist Eric H. Cline. The book is about the Late Bronze Age in the Eastern Mediterranean and how those societies collapsed due to globalization and a series of “perfect storms”, causing a cascade effect.  Lessons to be learned, no doubt.

How and when did you first get into the investment migration industry?
Even before I got into private equity, my law practice was – since 2004 – focused on Central and Eastern Europe. After a while, I started to realize that I would never permanently return to Canada, as I had put down roots in Europe. I started to look around at second passport investment options for myself and my colleagues (all of whom are of the same mindset and tasked me with the research).  

I looked at all the different options and eventually came to the conclusion that a fund investment would be a great idea for all of us and our respective families. This was around 2018 when Portugal and Cyprus were enacting their capital market reforms and the concept of a fund in the migration industry was quite novel, indeed. Our Saratoga fund and our involvement in the migration industry is really about creating an interesting solution that we understand and can work with as professionals for the benefit of our own families and futures, and which we make available to like-minded colleagues and a select group of investors. We are very much a niche product.

What was your proudest moment as a service provider?
Apart from the day on which we obtained our fund license, which was a big milestone after years of market research, preparation, and personal investment, the moment that our initial set of investors decided to subscribe was our proudest moment. Up until that point, most people thought I was crazy. It is a truly humbling experience to have highly experienced people from all walks of life placing their capital and trust in your product and concept.

Which investment migration market development has surprised you the most in the last year?
The closure of the Cypriot program was – without a doubt – a great travesty. Not because we at Saratoga were harmed, but because Cyprus lost an amazing opportunity to evolve into one of the market leaders in terms of fund-focused migration options. 

Outside of Portugal and Turkey, Cyprus is the only jurisdiction allowing for fund investment. Funds are very complicated products, which require the involvement of solid professionals and significant regulatory oversight designed to protect investors. Moreover, not too many jurisdictions can offer fund focused migration solutions because the underlying economies cannot sustain such an option. 

Nevertheless, with proper diversification strategies, funds provide an opportunity to tie investment migration with FDI into the real economy. Real estate as an investment migration option should never be replaced because it creates substantial local opportunity, but I firmly believe that funds provide a future opportunity whereby FDI is spread out into other areas of the local economy. Cyprus lost out in this respect.

If you could go 10 years back in time, what business decision would you change?
I would have moved to Cyprus earlier and started up our Saratoga fund accordingly (maybe not in migration initially; but generally). People would have said I was crazy then too, as I would have prematurely wrapped up a large law practice in Eastern Europe, and my colleagues and I as a partnership were engaged in a number of PE deals throughout the region. Nevertheless as they say, better late than never.

What investment migration industry personality do you most admire?
I would say Mohammed Asaria of Range Developments. Quite a market mover and visionary.

If all goes according to plan, what will you be doing five years from now?
Hopefully, the Saratoga fund will be publicly listed, and we will slowly mix migration investors with other well-informed and professional investors in various sub-funds, providing an interesting suite of financial products to the market.