Conduits of Capital

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CLOSING THOUGHTS The findings of this survey demonstrate that fund domiciles play an important role for the private equity industry in Sub- Saharan Africa, and that the jurisdiction where a fund is located can have a material impact on the ability of GPs to raise and invest capital, and LPs to commit to a given fund. Using offshore jurisdictions, such as Mauritius, is currently standard practice, largely because offshore jurisdictions have the legal and regulatory frameworks and supporting infrastructure that are critical to the funds industry (e.g., limited liability partnerships or appropriate corporates, the ability to contract freely, reliable and consistent approaches to dispute resolution and enforcement, etc.). Moreover, the tax efficiency offshore centres offer facilitates the ability of international capital to flow into Sub-Saharan Africa. That said, there is growing demand from institutional investors, such as pension funds and insurance companies, within Sub-Saharan African countries for access to private equity. As a result, onshore fund structures are becoming more important to the industry. However, without at least meeting the regulatory and tax policies offshore centres— including Mauritius—have in place, it will be hard for onshore centres to become broadly used domiciles for private equity funds. Moreover, as several practitioners noted in this survey, managing dual structures could become unwieldy given disparate approaches to regulation on the continent, and indeed, could impact the ability of GPs to offer their LPs limited liability. It could take years to foster the development of onshore legal and regulatory regimes and tax reforms that are conducive to private equity fund activity, and still more years of experience to prove the viability of onshore models. This is not a near-term solution for the industry. FMO, IFC, IFU, Norfund, OEEB, the Overseas Private Investment Corporation, PROPARCO and Swedfund— among others—have long recognised this critical role, and have supported the development of private equity funds for decades. We hope this publication provides greater transparency on the role of fund domiciles, and industry participants’ perspectives on what they look for in a jurisdiction. We believe some of the findings could be useful for making existing domiciles work even better, and helping future onshore domiciles operate in line with internationally accepted norms and best practices. All, of course, while focussing on the objective of fostering investment in growing African companies. Ultimately, sound legal and regulatory reforms and the adoption of competitive tax policies could be a benefit not only for private equity funds, but for broader private sector and financial sector development within these economies. Enhancements to the local business environment would go a long way toward increasing global investor confidence in—and thus commitments to—Sub- Saharan Africa. Taking a step back, it’s important to remember the role of a fund domicile—it is the conduit that connects global sources of capital with local companies. Given the scarcity of capital available to private businesses in Sub-Saharan Africa, there is a clear commercial opportunity for private equity investors to provide long-term growth financing. Equally important, however, is the opportunity for private equity to catalyse private sector development. Development finance institutions, including the African Development Bank, BIO, CDC, COFIDES, the Development Bank of Southern Africa, DEG, the European Bank for Reconstruction and Development, the European Investment Bank, Finnfund, 36 |
APPENDIX 1 – DETAILS ON SURVEY PARTICIPANTS SNAPSHOT OF GP RESPONDENTS Of the 59 GP respondents, the vast majority—93%— manage traditional private equity funds, with the remaining GPs focussing on non-traditional vehicles (i.e., investment holding / platform companies). In terms of the total dollar value of exposure to Sub-Saharan Africa private equity, firms participating in the survey range in size from US$4 million to US$1.6 billion. In addition, the respondents represent a blend of country-dedicated, sub-regional and pan-African funds, as well as a mix of first-time and experienced fund managers. With respect to role, nearly half of respondents (46%) are Executive / Senior Management, with Investment Team (27%) and Investor Relations / Marketing professionals (19%) rounding out the top three. Conduits of Capital – Onshore Financial Centres and Their Relevance to African Private Equity | 37
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 and 20: “Offshore” refers to a jurisdic
Page 21 and 22: expressed by GPs). Over 61% of GP r
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: “ STAKEHOLDER VIEWS ON THE RELATI
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
Page 73 and 74: Importance of Domestic Flows The re
Page 75 and 76: Rwanda is not included in any of th
Page 77 and 78: Other possible contenders may emerg
Page 79 and 80: APPENDIX 1: LISTING OF COUNTRIES IN
Page 81 and 82: Country / Territory Palau Listed by
Page 83 and 84: Country Mauritius Morocco 16 Nigeri
Page 85 and 86: Onshore Options for Africa-focussed
Page 87 and 88:
Developing skills in these areas re
Page 89 and 90:
2.2 Policy Issues Related to Onshor
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• Good accessibility. Good commun
Page 93 and 94:
4. ROLE OF DONORS AND TECHNICAL ASS
Page 95 and 96:
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
Page 109 and 110:
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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