South Africa: South African Private Equity Funds Investing In Africa

Last Updated: 25 January 2010
Article by Lance Roderick

When establishing private equity funds targeting investments in Africa, South African fund managers are increasingly starting to look offshore. The primary reason for this is to attract an international investor base. The choice of jurisdiction of incorporation is, however, also determined by a number of other factors including the location and practical requirements of the fund manager, the location and tax status of the potential investors, the infrastructure available in the chosen jurisdiction and the fund's target investment region. Tax consequences arising for investors, the fund, investee targets and the fund manager also need to be analysed. Offshore jurisdictions such as Mauritius, the Cayman Islands and the British Virgin Islands are generally considered attractive for tax reasons, relatively light touch regulatory regimes and the absence of exchange control restrictions. Mauritius also has a network of double taxation treaties which can be very attractive to funds investing in Africa. These jurisdictions are well known to the international investor community which makes the task of fundraising easier.

Some investors, including some international development finance institutions (DFIs), are restricted from investing in offshore funds as a result of internal policy restrictions and, in the case of South African investors, as a result of exchange control restrictions. South African parastatals, for example, are restricted under the Exchange Control Rulings from using a "tax haven" country as a conduit for outward foreign direct investments elsewhere in the world. This means that a South African DFI may be precluded from investing in an offshore fund, even though that fund may have an African developmental mandate which falls squarely within the developmental mandate of the DFI. The promoter of a private equity fund wishing to court such restricted investors must explore practical ways of accommodating them.

South Africa offers a number of advantages as a jurisdiction of incorporation: it has a convenient geographic location for pan-African investment (with many potential investors represented in South Africa), a sophisticated and well regulated financial services industry and a number of double taxation treaties with other African countries. There are various suitable fund vehicles available in South Africa. The most common is probably the en commandite partnership, which is similar to the internationally better known limited partnership. It comprises a general or disclosed partner (usually a company, whose liability is unlimited) and one or more investors which are undisclosed limited partners (whose liability is limited). The primary advantage of an en commandite partnership is that it is transparent for tax purposes, which means that it does not pay tax in its own right. Any income or gains of the partnership are taxed in the hands of its partners. However, a South African en commandite partnership may prove unsuitable for certain investors. There is no single fund vehicle which suits all investors and any structure will ultimately need to be driven by the demands of the fund promoter's investor audience.

There are a number of factors which need to be considered by a local private equity fund making investments in Africa through a South African incorporated vehicle.

Despite recent relaxations of foreign investment allowances, it is likely that the fund will require exchange control approval on a case by case basis for investments outside of the common monetary area of South Africa, Namibia, Lesotho and Swaziland. The administrative process for obtaining exchange control approval adds costs, time and uncertainty to the investment process. One particular African infrastructure fund was able to procure a partial general exemption from the exchange controls, probably granted as a result of the fund's overt developmental objective and its politically motivated genesis. Normally, though, it is difficult for a fund to receive a blanket approval.

An extensive regulatory framework applies to investment funds in South Africa. The regulations promulgated under the Collective Investment Schemes Control Act (CISCA) are restrictive as to the investment activities which can be undertaken by collective investment schemes, including restrictions on the use of borrowings, making it difficult for private equity funds to operate under CISCA's regulated environment. On the other hand, this regulation can give investors a degree of additional comfort and protection. In any event, South African private equity managers which are members of the Southern African Venture Capital and Private Equity Association (SAVCA) are entitled to an exemption from the provisions of CISCA, provided that they only market their products to selected financial institutions.

If the fund is parallel to an offshore fund it can, depending on the mandates of its investors, have a narrower investment policy than that of the offshore fund. For example, the South African fund may be restricted from investing outside the SADC. This limitation can be regulated contractually between the funds.

If the South African fund is structured as an en commandite partnership and the general partner is a South African entity which frequently concludes contracts on behalf of the partnership inside South Africa, there is a risk that an international investor in the fund may be deemed to have a permanent establishment in South Africa. In these circumstances, the international investor would be taxable in South Africa on its proportionate share of the fund's income and gains. This may be governed by a double tax treaty between South Africa and the country in which the investor is tax resident, and the risk can often be mitigated by limiting the functions which are performed by the general partner in South Africa.

A South African fund which is run in parallel with an offshore fund does involve more documentation (the onshore fund requires its own fund documents), higher costs (legal fees, local administration fees, banking fees, etc) and is administratively more burdensome. The fund manager also needs to apportion each investment between the two funds.

The trend for South African private equity managers to establish funds offshore is likely to continue, particularly as exchange control restrictions are relaxed. However, even if these restrictions are abolished completely, we are still likely to see a number of parallel structures being established onshore.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions