Answer ... The two main types of alternative investment funds (AIFs) in Mauritius are collective investment schemes (CISs) and closed-end funds (CEFs).
To qualify as a CIS, the following criteria must be met:
- The sole purpose of the fund is the collective investment of funds in a portfolio of securities, or other financial assets, real property or non-financial assets, as may be approved by the Financial Services Commission (FSC);
- The operation of the fund is based on the principle of diversification of risk;
- The fund is obliged, on the request of the holder of securities in the fund, to redeem them at their net asset value (less commission or fees); and
- Investors do not have day-to-day control over the management of the fund.
A CEF is an arrangement or a scheme, other than a CIS, whose object is to invest funds in a portfolio of securities or in other financial or non-financial assets, or real property, as may be approved by the FSC.
Based on figures from the FSC (published October 2019), as at 31 December 2018, 991 AIFs with a global business licence were operating in Mauritius, of which 469 were CISs and 522 CEFs.
CISs and CEFs can be retail funds or non-retail funds; however, it is quite rare to have CEFs that are retail funds.
The following sub-categories are common for the use of CISs and CEFs in Mauritius:
- Professional CISs (PCISs): To be sub-categorised as a PCIS, a fund may be either a CIS or a CEF, but is open only to sophisticated investors (this is a limited definition, unlike in certain other jurisdictions) or to private placements.
Expert funds: To be sub-categorised as an expert fund, the fund must be a CIS and should be open only to:
- investors who make an initial investment, for their own account, of no less than $100,000; or
- sophisticated investors. A ‘sophisticated investor’ is an investor that meets the definition set out in the Securities Act 2005 or any similarly defined investor in any other securities legislation (which makes the category of sophisticated investor her wider than that under the PCIS regime).
These sub-categories benefit from a light regulatory approach, given they are targeted at sophisticated institutional investors or high-net worth individuals.
Answer ... AIFs are typically structured as a company (including a protected cell company) or a limited partnership. It is possible to structure an AIF as a trust, although this is rare in practice.
Answer ... With respect to companies, the Mauritius Companies Act is flexible, allowing for ease of operation while providing statutory protection for shareholders (including minority shareholders). Classes of shares may be issued giving different rights to different categories of investors. Directors have statutory duties, including a duty to act in good faith and in the best interests of the company. Certain matters also require the consent of the shareholders, thus offering a degree of protection set out in the law to investors.
In a limited partnership, the general partner can easily manage the structure under the terms set out in the partnership agreement. Unlike the Companies Act, which provides more extensive statutory protection, greater flexibility is afforded to the partners under the Limited Partnership Act to decide on the operation of the structure; and protections are negotiated and contractually embedded in the limited partnership agreement itself. This has the benefit of allowing the limited partnership to be managed much more flexibly through the general partner (with a delegation to the CIS manager). It is also relatively easy to accommodate the specific requirements of individual investors (compared to a company, where shareholders of the same class must be treated equally, making it cumbersome and inefficient to deal with different share classes in the structure). While in a company, certain decisions must be made by the board, in a limited partnership there is no such restriction: the general partner can make all decisions allowed under the limited partnership agreement. This facilitates quick and efficient decision making in the operation of the limited partnership. A limited partnership structure is also tax transparent (unless the partners, in the case of a limited partnership holding a global business licence, opt for it to be taxable in Mauritius).
A limited partnership structure is also more practical for returning capital or profits to investors since the provisions of the Companies Act relating to solvency test, buy-back, redemption of shares and requirement for accumulated profits do not apply.
The company structure is most widely used. However, since the introduction of the Limited Partnership Act in 2011, we are gradually seeing a shift towards the use of limited partnership structures in respect of closed-end funds, especially those housing US investors and those not necessarily wishing to have a tax-resident fund in Mauritius.
Answer ... The limited partnership is a tried and tested structure in the private equity space. Private equity fund managers and investors are typically more comfortable and familiar with the limited partnership, which is the structure of choice for investors and fund managers in many jurisdictions in respect of private equity funds.
Prior to the introduction of the Limited Partnership Act in 2011, private equity funds were structured through corporate vehicles. In recent years, as local service providers have become more familiar and investors have gained greater confidence in the limited partnership structure in Mauritius, we have been seen a shift towards the limited partnership structure.
With regard to hedge funds, which are open-ended, the choice remains to adopt the company structure where redeemable shares are issued to investors, although in rare cases limited partnership structures have in practice been used for hedge funds business.
Answer ... There is no requirement to have a local administrator. A CIS manager can perform administrative services. However, if the fund or the CIS manager wishes to engage another party to perform administrative services, that party must obtain a licence as a CIS administrator.
‘Administrator services’ are services with respect to the operations and administrative affairs of a CIS, including:
- accounting, valuation and reporting services; and
- the provision of the principal office of a CIS.
They do not include
- the provision of a registered office to a CIS, where the usual corporate, secretarial and related services are provided;
- the maintenance of any register of shareholders or participants, or the registration and payment of fees; and
- the provision of investment advice or investment management or trading execution services.
In practice, given that it is a requirement for all entities holding a global business licence to engage a ‘management company’ in Mauritius, the management company will also typically provide administrative services to the AIF.
Answer ... Except in respect of a global scheme (where a foreign custodian may be appointed, subject to the approval of the FSC), a local custodian must be appointed in respect of a CIS (open-ended fund). The local custodian must be a bank or a trust company that is a subsidiary of a bank. It must also be independent from the CIS manager.
Answer ... It is possible for an AIF to redomicile to Mauritius. The AIF must file an application with the registrar of companies/limited partnerships (depending on its structure) and the FSC.
For an AIF incorporated as a company, the AIF must have a place of business in Mauritius or carry out business in Mauritius. It must file with the registrar of companies, among other things:
- an authenticated copy of the certificate of its incorporation or registration in its place of incorporation or origin;
- a duly authenticated copy of its constitution, charter, articles or other instrument constituting or defining its constitution; and
- notice of its registered office details in Mauritius.
It cannot commence business unless the name of the AIF is available at the registrar.
An AIF incorporated as a limited partnership may apply to the registrar to register as, and continue as, a limited partnership in Mauritius. In order to register as a limited partnership in Mauritius, it would need, among other things, to:
- be authorised as a limited partnership in the country where it is incorporated;
- obtain the consent of a majority of the general partners to register the limited partnership in Mauritius;
- be solvent immediately after becoming registered in Mauritius; and
- submit to the registrar such document or information as the registrar may require.
Recognition may be subject to such conditions that the FSC considers necessary or desirable for the protection of participants in the scheme. To be recognised, the CIS must provide documentary evidence of its constitution, establishment and good standing in the relevant jurisdiction, including complete details of the authoritative body with regulatory and supervisory functions in the jurisdiction in which the CIS is established. The CIS must also meet such requirements of the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008 as the FSC considers applicable.