Financial Services Commission
Guide to Private Equity Fund
• Private Equity Funds Generally
• FSC Authorisation Policy
Following the Government's announcement to invest massively in the equity of enterprises in the
priority sectors - through the setting up of a one billion rupee Equity Fund, measures were taken
to encourage equity participation in private enterprises by Private Equity Funds. "Private equity"
has become an increasingly important part of mainstream investor portfolios. The Financial
Services Commission sets out in this paper the basic criteria on which applications for the
establishment of Equity Funds will be considered.
There is no standard definition of Private Equity Fund per se. According to the British Venture
Capital Association (BVCA), private equity means the equity financing of unquoted companies at
many stages in the life of a company from start-up to expansion and also management buy-outs
(MBOs) or buy-ins (MBIs) of established companies. Venture Capital is a subset of private equity,
covering the seed to expansion stages of investment. It is believed that the activities undertaken
by Private Equity Funds in Mauritius will act as a catalyst for the development of the economy as
a whole by providing equity capital to enterprises in key sectors and hence giving them the
necessary support to renew equipment and technology as may be necessary. The equity
investments may be directed to both listed and unlisted companies in a bid to capitalise
Applications for authorisation to operate an Equity Fund should be submitted to the Financial
Services Commission under the provisions of the Financial Services Development Act 2001
(FSDA). Attention is drawn to section 2 of the Income Tax Act 1995, as amended, which provides
for the setting up of Equity Funds to be approved by the Financial Services Commission (FSC).
The establishment and operation of Private Equity Funds in Mauritius will be governed by own
specific legislation to be enacted hereafter and the Companies Act 2001. In the meantime, they
will be regulated by the Financial Services Commission (FSC) under the provisions of the FSDA
in accordance with international best market practices and appropriate prudential controls.
Private Equity Funds Generally
Structure of Private Equity
Private equity investors will invest either directly or through a fund of funds or by way of limited
(a) Limited Partnerships *
The predominant vehicle in the global private equity industry is the independent, private, fixed-life,
closed-end fund, usually organized as a limited partnership. The limited partnership is a fund of
pooled interests managed by a General Partner who raises capital (i.e., committed capital or
commitments) from outside investors (Limited Partners).
The partnership is independent in that the management of the investment pool is performed by a
management firm that has no outside affiliation or ownership. Most funds of this type require a
nominal investment by the General Partner. In addition, the General Partner usually takes a profit
split (known as carried interest). Another unique feature of these types of vehicles is that any
proceeds from investments must be distributed to investors – they cannot be reinvested except
under a few exceptional conditions.
(b) Captive Funds
Some private equity funds are organized as captive or semi-captive rather than independent.
Captive refers to a fund that only invests for the interest of its parent company. This parent may
be a company, a banking or financial institution. The notable feature of this type of private equity
is that typically the fund is not a fixed-life investment pool – it is ‘evergreen’, i.e., a fund with no
fixed cost basis as the parent company can contribute additional capital or withdraw capital from
the fund whenever it chooses. A fund of this type typically charges no management fee to its
parent company and does not really have a ‘carried interest’ profit split, although a few creative
groups have compensation schemes for the investment officers that work similar to a ‘carried
(c) Semi-Captive Funds
There is another type of hybrid vehicle called semi-captive fund that mixes capital from both
outside investors and the parent company. These funds typically charge a management fee and
carried interest similar to the independent funds, but they are typically ‘evergreen’ (i.e., not with a
fixed life), and are not independent, but may be closed-end as the number of investors is fixed.
(d) Open-end Funds
Another investment structure of a private equity fund is an open-ended investment company that
acts much like a mutual fund, whether listed or unlisted.
The key elements of private equity will typically include –
1. Investments in unquoted companies
2. Equity capital
3. Medium to long-term stake
4. Target companies with growth potential
Minimum of 250 million Mauritian rupees
Manager’s Fund Managers typically invest their personal capital alongside their investors’ capital
Commitment which often creates a higher level of confidence in the fund. Investors look for a
“meaningful” manager investment of at least 1 % of the size of the fund.
Duration The investment term for most private equity funds is 7 to 10 years, with the possibility of
extensions for another two years. The investment remains usually illiquid during this
period of time but distributions may be made as investments are sold.
Investment On average, private equity funds invest committed capital over a three to six year period.
Management Fund fees traditionally include an annual management fee of around 1.2 to 2.5 % of the
Fees committed capital, which should approximate the actual costs of operating.
Performance A share, typically 20% of total returns that is payable to the Manager. This is known as
Fees “carried interest.”
Preferred The carried interest may be subject to the fund exceeding a certain level of returns on
Return: the drawn down money. This preferred return is a margin on the risk free return per
annum over the life of the fund.
Reporting and Valuation
Because of their unique characteristics, additional reporting requirements are needed for private
equity funds. In order for any performance reporting requirements to be meaningful, the return
calculations must be based on accurate values of the underlying securities. Unlike investments in
publicly traded securities where there are well-defined prices, an objective valuation of venture
capital or private equity investments is more difficult to compute. Various organizations such as
the British Venture Capital Association – BVCA, have developed valuation guidelines in an
attempt to standardize the methods used for valuing such assets. More information about BVCA
reporting and valuation can be obtained from its web site (http://www.bvca.co.uk).
FSC encourages potential applicants to adopt standards and guidelines as published by BVCA
with regard to venture capital and private equity funds.
*This is a vehicle 'par excellence' . However , Mauritius has not enacted legislation on limited
partnership. Pending enactment of such legislation , applicants should use the structure of a
limited liability company registered under the Companies Act 2001
Structure of Private Equity
FSC Authorisation Policy
One of the main objectives of the FSC is to develop and consolidate
the financial services sector in Mauritius and as such much emphasis
will be laid on the profile of the fund’s promoters and/or shareholders.
When considering an application to operate a Private Equity
Fund, the FSC will have regard to the overall aspects of the
application and will in particular take account of provisions
relating to the protection of public interest (where the fund will
be marketed to the public) and the good repute of Mauritius
as a sound financial services centre.
The FSC will also have regard to the risk profile and
sophistication of the investors investing into the fund. If the
fund is targeted to institutional investors or sophisticated
investors, the FSC may rely on adequate disclosure.
Since professional or institutional investors are considered as
discerning players, the FSC may afford to be less rigorous on
regulatory disclosure in such cases. However, the FSC will
pay close attention to applications where a fund will target
investors with different risk profiles.
Certain essential criteria must be satisfied by every Applicant
before obtaining an authorisation to operate a Private Equity
Fund. (“The Applicant” means the CIS in whose name the
authorisation [if granted] will be issued. By extension, it
includes representatives of the Applicant).
These criteria include whether the Applicant:
1. and all those who are associated with the application
are “Fit and Proper” – this includes competence,
integrity and solvency;
• is likely to carry on its business in accordance
with the law and all relevant regulations and
• can demonstrate an acceptable history of sound
The manner in which the FSC interprets the “Fit and Proper Criterion” and the basis on which it is
applied in Mauritius are described in full in FSC’s “Guide to Fit and Proper” – a copy of which will
be made available on request.
In addition, the FSC may impose such other conditions as it deems fit from time to time (see
Annexes 3 and 4). Annex 3 sets out the conditions for the authorization of a Private Equity Fund.
Annex 4 sets out the schedule of conditions for a management company of a Private Equity Fund
which requires a licence under section 14 of the Financial Services Development Act 2001 to
Applicants are encouraged to discuss their applications with FSC prior to submitting official
Preliminary Stage (Initial Review)
At this stage, a formal application should be submitted in writing, giving:-
1.1 An Outline Memorandum or a Structure Paper or Placement/Offer Document
containing the information set out in Annex 1.
1.2 A detailed Business Plan which inter-alia describes the fund’s business and
operations, summarises its business strategy and includes detailed financial
1.3 CV details and personal questionnaire forms for relevant people involved in the
scheme at the level of the fund or the functionary. The Manager of the Fund must
also be licensed by the FSC.
1.4 Where applicable, a copy of the audited financial statements of the promoters for
the last three years should be submitted.
1.5 A copy of all constitutive documents including draft agreements or material
contracts between the fund and its functionaries should be submitted.
1.6 The Fund’s operational manual including AML-CFT Procedures, Customer Due
Diligence (CDD) checks should accompany the application.
Every effort will be made to ensure that an Applicant knows –at
the outset – what additional information the FSC may require.
Pre-Authorisation Stage (Document Review)
On the understanding that the application meets the FSC’s authorisation requirements, FSC will
submit the application to its Board with recommendations, observations and comments.
Typically, the FSC may within 15 days complete the processing of an application. Alternatively, it
may decide to refer the application back to FSC Management for further processing as may be
Upon approval-in-principle, a letter of intent (see Annex 2) will be issued wherein some pre and
post authorisation requirements and the proposed conditions shall be set out.
Post-Authorisation Stage (Formal Authorisation)
Prior to formal authorisation being granted, an Applicant should satisfy all the pre-authorisation
requirements. The Applicant should communicate in writing to FSC its acceptance of the
authorisation conditions. The Fund is also required to submit within one month of the
authorisation date certified copies of all the material contracts duly executed, the Fund rules and
board resolutions passed at the first and subsequent board meetings held to launch the fund and
a copy of the Offer Document in its final form.
Submission of Applications
Applications should be addressed to the Chief Executive,
Financial Services Commission
4th Floor, Harbour Front Building
President John Kennedy Street
Tel: (230) 210 7000
Fax:(230) 208 7172
• Annex 1 Information to be contained in the Information
• Annex 2 Letter of intent
• Annex 3 Schedule of conditions to authorize Private Equity
• Annex 4 Schedule of conditions to license Investment