Conduits of Capital

EXECUTIVE SUMMARY
In April 2015, FSD Africa (FSDA) and EMPEA Consulting
Services surveyed 118 individuals active in Sub-Saharan
African private equity from over 90 firms in order to better
understand how industry participants view fund domiciles—
both onshore and offshore—including how satisfied they
are with their current jurisdictions and which factors are
most important to them when choosing a location for
their funds. The survey also seeks to uncover just how
much industry interest there is in the broader adoption of
onshore domiciles across the continent; and, where and
how the development of onshore domiciles could best be
facilitated. We hope the findings of this analysis provide the
industry—and stakeholders more broadly—with a greater
understanding of the role that fund domiciles play as
conduits for investment into Sub-Saharan Africa, why they
are important for private equity participants and partners,
and what can be done to improve both existing and new
potential jurisdictions.
Key findings from the EMPEA 2015 African Fund
Domicile Survey include:
I. The use of offshore jurisdictions is standard
practice for Sub-Saharan Africa’s private equity
industry. The majority of the 59 GPs participating in
the survey (nearly 75%) have chosen an offshore
jurisdiction for their largest currently active private
equity fund, with Mauritius leading as the most popular
jurisdiction (30) followed by Jersey / Guernsey (5). Of
those fund managers who have chosen an onshore
jurisdiction, most (13) are structured in South Africa.
II. The prevalence of offshore structures—including
the use of Mauritius—is largely explained by the
weight industry participants place on a domicile’s
tax efficiency for distributions. Approximately 61%
of GPs and 64% of SPs cite this consideration as
important in a fund domicile. Of note, LPs place greater
importance on transparency than tax efficiency, with
44% citing it as a leading factor in their preference for a
fund domicile.
III. The vast majority of the industry views Mauritius
favourably despite the fact that the market has
come under political criticism in recent years,
and is viewed suspiciously by some civil society
groups. GPs with vehicles domiciled in Mauritius give
it a high approval rating, with 97% of respondents
reporting that they are satisfied or very satisfied with
the jurisdiction. When asked if they had any concerns
about Mauritius as a domicile, only 17% of all survey
participants responded yes—a ratio that is relatively
consistent across LP, GP and SP respondents.
IV. Concerns about Mauritius appear to be stronger
among DFIs, with 33% of DFIs expressing caution
compared to 17% of all LPs. Moreover, 75% of the
total LP respondents who expressed concerns about
Mauritius were representatives from DFIs. In general,
LPs’ biggest concerns pertain to transparency and
exchange of tax information, and the degree of civil
society / political criticism attendant with the domicile,
whilst GPs—perhaps unsurprisingly—are primarily
worried about LP concerns. That said, the attitude of
DFIs toward Mauritius differs by institution. Some DFIs
do not have an issue with Mauritius per se, but rather
with the tax treatment of certain corporate investment
vehicles permissible in the country, which they regard
as a harmful tax practice.
V. Despite the prevalence of offshore funds in
the industry, the majority of the GP and LP
survey participants have experience with—or
have expressed an openness to—onshore fund
domiciles. With respect to the GPs, 26% report that
they relied upon onshore domiciles for parallel / feeder
funds as part of a broader fundraising effort, whilst
20% relied exclusively upon an onshore domicile. An
additional 31% of GPs would consider domiciling in an
onshore African country in the next three to five years.
In the case of LPs, 46% of surveyed participants have
committed to an onshore vehicle while an additional
44% would consider doing so.
Conduits of Capital – Onshore Financial Centres and Their Relevance to African Private Equity
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