Conduits of Capital

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THE CURRENT STATE OF PLAY FOR SUB-SAHARAN AFRICA- FOCUSSED PRIVATE EQUITY FUND DOMICILES While private equity in Sub-Saharan Africa remains a relatively nascent industry in comparison to other emerging market regions, interest in the subcontinent has exploded over the last several years. According to EMPEA data, US$12.8 billion has been raised for Sub-Saharan Africafocussed private equity funds between January 2010 and March 2015, while EMPEA’s annual Global Limited Partners Survey reveals that the region has ranked as one of the top three most attractive emerging markets for private equity investment over the last three years. This dynamic has resulted in a growing number of new entrants—both local and global—investing in the region, as well as an increase in the number of fund managers raising larger vehicles (US$700+ million funds). Where are these funds being domiciled? The survey asked fund managers to identify the location of their largest currently active fund. Among the 59 GPs that participated in the survey, the majority (nearly 75%) have chosen an offshore jurisdiction. In particular, 30 have chosen to domicile their current fund in Mauritius, followed by five domiciled in Jersey / Guernsey. The balance of offshore fund domicile locations represents a geographically disparate collection of jurisdictions. Of those fund managers who have chosen an onshore jurisdiction, most (13) are structured in South Africa. It is important to note that surveyed GPs have selected jurisdictions with extant legal and regulatory frameworks that are largely conducive to the private funds industry. Overall, GPs report that they are pleased with their current fund domicile, with 90% of firms stating that they are either satisfied or very satisfied. GPs with vehicles domiciled in Mauritius are particularly content, with 97% of respondents reporting that they are satisfied or very satisfied with the jurisdiction. In addition, whilst South Africa is the most frequently utilised onshore domicile, satisfaction is relatively low compared to other jurisdictions. WHAT ACCOUNTS FOR THE POPULARITY OF, AND SATISFACTION WITH, OFFSHORE FUND DOMICILES? To better understand why certain fund domiciles are chosen for Sub-Saharan Africa-focussed funds, the survey asked respondents which factors are of greatest importance to them when considering a jurisdiction. However, we first sought to determine how material fund domiciles are overall to the private equity industry by asking all GP, LP and SP respondents to indicate how important a jurisdiction is to their fundraising and allocation decisions. Seventy-five survey respondents—nearly 65% of the total—believe the location of a fund is either important or very important in their—or their clients’— decision to raise or commit to a fund, while only 10% report that a fund’s domicile is not important. For more detail on how firm type, respondent location and experience with Sub- Saharan African private equity impact views on the importance of fund jurisdictions, please see Spotlight: The Import of Fund Domiciles in Fundraising and Allocation Decisions. When asked why—in general—the location of a fund domicile is important to their allocation / fundraising decisions, respondents relay that tax efficiency for distributions is the leading factor, which may explain the preference toward offshore domiciles. Tax efficiency for distributions was ranked as an important consideration by 47% of all respondents, followed by transparency (43%) and tax treaties with target markets (28%). However, LPs and GPs differ in their opinions on which factors are most important with regard to the location of a fund’s domicile. (SP views are generally in line with those 20 |
expressed by GPs). Over 61% of GP respondents consider tax efficiency for distributions to be an important issue, and they give greater weight to tax treaties with target markets (39%) than LPs do (10%). In contrast, LPs place greater importance on transparency and reputational risk than GPs do. Responses to “Other” include: “The demands of some investors.” “Avoidance of currency exchange risk.” “Proximity to deal environment and networks.” Conduits of Capital – Onshore Financial Centres and Their Relevance to African Private Equity | 21
Page 1 and 2: Conduits of Capital Onshore Financi
Page 3 and 4: TABLE OF CONTENTS I. FOREWORD .....
Page 5 and 6: predictable, legal systems that res
Page 7 and 8: works and that everyone loves.” D
Page 9 and 10: Because of the fragmented nature of
Page 11 and 12: Industry Views: EMPEA 2015 African
Page 13 and 14: EXECUTIVE SUMMARY In April 2015, FS
Page 15 and 16: INTRODUCTION Across the emerging ma
Page 17 and 18: As a general rule, GPs tend to foll
Page 19: “Offshore” refers to a jurisdic
Page 23 and 24: “The industry has found a very sa
Page 25 and 26: INDUSTRY ATTITUDES TOWARD ONSHORE A
Page 27 and 28: A RANKING OF ONSHORE FUND DOMICILES
Page 29 and 30: Conduits of Capital - Onshore Finan
Page 31 and 32: WHAT COULD MAKE ONSHORE SUB-SAHARAN
Page 33 and 34: “Other” actions include: “rem
Page 35 and 36: “ STAKEHOLDER VIEWS ON THE RELATI
Page 37 and 38: APPENDIX 1 - DETAILS ON SURVEY PART
Page 39 and 40: Expert Perspectives: Onshore Financ
Page 41 and 42: Experts were asked to make recommen
Page 43 and 44: Table 2 - Prerequisites for a succe
Page 45 and 46: 3. FINDINGS 3.1 Evolution and Compa
Page 47 and 48: particular jurisdiction (communicat
Page 49 and 50: that it is obvious: a well-function
Page 51 and 52: • The development of an onshore f
Page 53 and 54: amined the impact that venture capi
Page 55 and 56: 4.1. Where do Private Equity Fund M
Page 57 and 58: in absolute terms, or relative to t
Page 59 and 60: average. With respect to regulatory
Page 61 and 62: For future research, it is importan
Page 63 and 64: ENDNOTES 1 World Bank Enterprise Su
Page 65 and 66: 33 African Development Bank. Maurit
Page 67 and 68: 71 Unfortunately, the DTAAs lists b
Page 69 and 70: The financial activities carried in
Page 71 and 72:
The OECD has reviewed over 100 juri
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Importance of Domestic Flows The re
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Rwanda is not included in any of th
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Other possible contenders may emerg
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APPENDIX 1: LISTING OF COUNTRIES IN
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Country / Territory Palau Listed by
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Country Mauritius Morocco 16 Nigeri
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Onshore Options for Africa-focussed
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Developing skills in these areas re
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2.2 Policy Issues Related to Onshor
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• Good accessibility. Good commun
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4. ROLE OF DONORS AND TECHNICAL ASS
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Thus, while some PE general partner
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management extends to monitoring co
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ANNEX 1: CATALOGUE OF FINANCIAL CEN
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Dublin Mauritius Dubai Botswana Cap
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To some extent, policymakers also n
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In administrative financial centres
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services industry. However, recent
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gains, even if it involves offshore
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ather than an onshore centre that i
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generally look to London or in some
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Onshore Options for Africa-focussed
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whether it is ‘Local,’ ‘Trans
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are suited to particular financial
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In GFCI 16, only three African cent
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The ‘stable’ centres in the bot
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GFCI 16 Investment Management Centr
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Professional service providers tend
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Busan and Doha have been advancing
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Zambia and Zimbabwe, the report not
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Get Connected - Ease Scaling Up In
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Financial centres are added to the
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The SVM then uses the data to predi
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Instrumental Factor Country or City
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Instrumental Factor CA* BU DO DU IS
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Open Government The World Justice P
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Securitisation TheCityUK http://www
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Human Capital Instrumental Factor S
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Global City Competitiveness EIU htt
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6.4 Appendix D - Group Respondent P
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Dubai Istanbul Conduits of Capital
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6.5 Appendix E - Country Summary Ov
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Uganda 26.086 33,800,000 772 Kampal
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