Fund administration in Mauritius: An interview with ITL’s Yan Ng
Africa Private Equity News speaks to Yan Ng, executive director for fund services at Intercontinental Trust in Mauritius.
Describe the current situation in Mauritius regarding Covid-19.
Mauritius hasn’t had any new local Covid-19 cases for over two months. We do, however, have five imported cases from returning residents that were detected during quarantine.
What this means is that restrictions have been more or less lifted. Mauritian people are allowed to move freely and go to places like the beach, shopping malls, bars and nightclubs as well as practise any type of sport. Schools are also opening on 1 July. Regulations in terms of business have been gradually relaxed with most offices now back to work. It is still compulsory to wear a mask in public whereas social distancing is recommended.
There are still restrictions on flying into the country; the airspace is only open for Mauritian citizens wishing to come back home. The national airline will resume its normal operations and flights on 1 September subject to the opening of the Mauritian borders and lifting of travel restrictions.
In general, I think the Mauritian people are satisfied with how the situation has been handled.
The European Union (EU) recently included Mauritius on its list of high-risk third countries. What does this mean for private equity funds domiciled in Mauritius?
First of all, it should be remembered that the inclusion of Mauritius on the EU List of high-risk third countries (the List) is a direct consequence of the listing of Mauritius by the Financial Action Task Force (FATF) on its list of “Jurisdictions under Increased Monitoring” earlier this year. The List only comes into force on 1 October 2020. The Mauritian Government is currently addressing each of the issues identified by the FATF and have committed to address all the deficiencies by latest September 2020. Therefore, there is a chance that Mauritius can be removed from the List before 1 October.
The issue really pertains to new funds that have European development finance institutions (DFI) as limited partners. What we see on the ground is that European DFIs which have already committed to invest are continuing to honour their capital commitments. The existing private equity funds will be less affected by the inclusion of Mauritius on the List but they might experience some delays when processing transactions with parties based in Europe due to enhanced customer due diligence.
EU Member States will require its entities to apply enhanced customer due diligence measures when establishing business relationships or carrying out transactions involving high-risk third countries identified by the Commission.
The EU regulation states: “Persons and entities implementing EU funds or budgetary guarantees are prohibited from entering into new or renewed operations with entities incorporated or established in EU high-risk third countries, except when an action is physically implemented in these countries and subject to the absence of other risk factors.”
The impact will be minimal for Mauritius-domiciled private equity funds with non-European investors and for those that do not deal with Europe. It also shouldn’t present a big issue for funds with private European investors. However, it could be problematic for new funds with European DFIs as investors.
So existing funds don’t have anything to worry about?
Yes, this is how we understand it. The aim of DFIs is generally to help private equity funds do business in Africa and to help grow the continent’s economies. If the taps were to be suddenly closed and the funds ran out of money, the entire existing private equity system would collapse. So on that basis, we understand that the European DFIs will continue to honour their commitments.
How has Covid-19 impacted African private equity and what is your outlook for the industry?
Covid-19 has hit Africa a bit later than many other countries. It is therefore not clear if Africa has reached the peak in terms of Covid infections. The full impact of the virus still needs to be assessed.
Some sectors are definitely going to be affected more than others. Industries such as tourism, real estate and oil and gas have already been hard hit. In some countries, companies also had to shut down operations due to the lockdowns, which has led to liquidity and cash flow challenges.
However, the crisis has also spawned some potentially lucrative opportunities. Covid has caused challenges in terms of global food supply and I believe this presents tremendous potential for food companies in Africa, particularly considering the continent’s agricultural resources. Fintech could also see exponential growth as people embrace technology and adopt cashless payments. If the pandemic crisis has taught us anything, it is that self-sufficiency should remain high on the economic agenda and Africa will only be able to achieve this by eroding any barriers to intra-regional trade. African leaders will now need to take concrete steps towards the finalisation of the African Continental Free Trade Area.
I believe there are opportunities for private equity firms to invest in inherently good companies facing liquidity constraints at very favourable valuations.
But a lot will depend on the extent to which consumption returns. Many African countries have implemented monetary measures, such as quantitative easing, to reduce the impact of Covid and we will have to wait and see how these economies recover.
Describe some of the trends in Mauritius’ fund administration industry.
Mauritius remains by far the preferred destination to set up a fund structure for investments in Africa. The reasons for this are Mauritius’ good ranking in the World Bank’s ease of doing business index, the established legal system and the availability of skilled professionals such as lawyers and accountants. Mauritius also has a favourable time zone and both English and French are fluently spoken and written by professionals. In addition, there is no exchange control in Mauritius, allowing for free international flow of funds for all legitimate transactions.
The laws of Mauritius are quite flexible for private equity, allowing for various fund structures. Private equity was traditionally set up as limited partnerships but in recent years we’ve seen greater use of permanent capital vehicles when structuring private equity funds. Moreover, investors often see Mauritius as a work and live destination where many of them have chosen to settle on the island – that way, they are able to operate in a sophisticated and transparent financial environment whilst enjoying all the perks of island living.
The local fund administration industry has seen consolidation as international fund administrators have come in and acquired domestic firms. Many of the big international players are entering Mauritius through the acquisition of local fund administrators. This is a trend that is expected to continue.
Another trend is that local fund administrators are pursuing internationally-recognised certifications, such as ISAE 3202, to give comfort to their promoters and clients. So we are witnessing an internationalisation of the fund administration industry in Mauritius.
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