Fund managers thinking offshore
Maitland has noted a rapid increase in the number of local fund managers requiring assistance in setting up and administering funds offshore.
In some instances, this is to accommodate South Africans externalising their wealth and wanting to retain their trusted relationships with local fund managers. But it is also the result of the demand for incoming investment into Africa, largely through private equity funds.
Speaking at a Johannesburg client seminar, Andre le Roux, responsible for business development at Maitland, said: “Middle Eastern and European institutional investors are looking to private equity in Africa to add alpha. And they are looking to South African fund managers to manage their pan-African investments.”
As a result, pan-African funds are being set up in lower-tax offshore jurisdictions such as Cayman, British Virgin Islands, the Isle of Man, Cyprus or Malta or onshore low-tax jurisdictions like Ireland and Luxembourg. Managers typically remain in South Africa, close to African stock exchanges and private equity deal-making in countries such as the DRC, Nigeria, and Kenya.
Relatively complex structuring is often required to allow South African fund managers to seek efficiency from both an exchange control and taxation point of view. Managers are frequently required to travel and, because South Africa does not currently have an investment management exemption in its tax laws, some are even relocating.
Shayne Krige, a partner in Maitland’s legal advisory office in Paris, said Luxembourg is growing in popularity as a destination for establishing investment funds. The introduction of the specialised investment fund (SIF) in 2007 together with the UCITS III regime has considerably advanced Luxembourg’s flourishing hedge fund, private equity and real estate fund industry.
The SIF gives promoters and investors a new flexible investment tool in a strong and reliable legal environment coupled with skilled service providers, a light and prudent supervision and an attractive tax framework. The SIF is attracting institutional investors, professional investors and high-net-worth individuals, with net asset values maintained by SIFs in Luxembourg now amounting to over €125 billion.
Maitland has also noted increasing acceptance of the concept of “offshoring”, whereby assets may be registered in a particular jurisdiction but their administration takes place elsewhere, usually in a relatively low-cost jurisdiction such as South Africa or India. The South African financial services industry has a good reputation and the time zone is favourable, at least for European jurisdictions.
