Claude Harvey, Senior Manager: Business Development & Client Management in Mauritius, explains why Mauritius is increasingly attracting alternative investment funds.

Mauritius is the gateway for US$600 billion of annual investment into Africa. So it comes as little surprise that Mauritius is as well known for being a leading international finance centre as it is for being a tropical holiday destination. What is more surprising is that only 40% of the investments via Mauritius leverage its comprehensive list of tax treaties, illustrating that the island state has much more to offer. Indeed, Mauritius is increasingly demonstrating its position as a domicile of substance and value-add.

The World Bank’s 2018 “Doing Business” report has rated the financial hub at 25th for ease of doing business globally. This consolidates Mauritius’ position as the most competitive economy in sub-Saharan Africa – ahead of other countries such as Rwanda (41), Morocco (69), Kenya (80), Botswana (81) and South Africa (82). There are a significant number of South Africans, French and other Europeans that call the island home and would testify to this assertion.

Regulatory framework

Mauritius has established a mature regulatory investment fund framework. Investment funds are divided into two broad categories: those that are collective investment schemes (CIS) and those that are closed-end funds (CEF). In order to set up, maintain and/or list any fund or business, an authorised and regulated management company’s services are required. At the time of writing this article there are more than 150 such companies on the island, most of which are only able to fulfil the most basic of company registrations and management. One could argue that only a small percentage of these management companies is sophisticated enough to properly ensure the functioning of the CIS/CEF licensing and maintenance processes and compliance with regulatory requirements.

At Maitland, we have seen a renewed interest in Mauritius for investment funds and a significant increase in activity within the alternative investment space in Africa. It has become evident to savvy investors that Mauritius is attractive as a base for a wide range of investment strategies. Most investors are aware of the island’s highly attractive business framework that includes a number of incentives, like no capital gains tax and free repatriation of profits, capital and interest. Relatively recently, many South African fund managers who are looking for alternative opportunities have found it interesting that the Mauritian tax authorities provide a five-year corporate tax holiday for qualifying employees in asset management companies.

A “midshore” domicile

The jurisdiction provides a politically and economically stable environment, which is underwritten by the Privy Counsel of England and Wales – just another factor that contributes to the ongoing attractiveness of Mauritius as an investment destination and launch pad into Africa – and even the rest of the world. It is highly likely that these factors are some of the reasons why Maitland has noticed that European investors in particular are increasingly comfortable with Mauritius’ “white list” status and view Mauritius as more than just an “offshore domicile”. Indeed the term “midshore” is probably more appropriate.

As an example, one of our Maitland clients is involved in a clean technology fund. The investors in the fund are blue-chip European and American institutions who are comfortable with Mauritius as a suitable domicile for their pan-African clean tech private equity fund. We also have a number of clients who have established successful private equity and real estate funds in Mauritius. Some of these funds are invested in a variety of projects across the continent and have similarly attracted blue-chip investors from South Africa and the first world. With our position of strength on the island we support existing clients that have funds invested in African trade finance debt, agri, infrastructure and fixed income funds.

Robust and innovative stock exchange

The Stock Exchange of Mauritius (SEM) is increasingly also part of the funds’ ecosystem. In a discussion with Sunil Benimadhu, CEO of SEM, he highlighted that the SEM is now a leading exchange on the African continent and that it has been ranked Africa’s Most Innovative Stock Exchange four times during the last 10 years by Africa Investor. Since 2009, the SEM has successfully implemented an internationalisation strategy and has evolved into a leading multi-asset class international stock exchange, which lists a wide spectrum of local and international products, including equity products, debt products, funds and collective investment schemes, structured products, exchange-traded funds (ETFs), exchange-traded notes (ETNs) and depositary receipts. The SEM’s platform has been used by local and international issuers to raise $4.2 billion during the last eight years; this is not massive but is off a small base with significant year-on-year growth. The exchange has a unique multi-currency, capital-raising, listing, trading and settlement platform in Africa. It allows the issuer to list its company’s financial products in US dollars, euros, British pounds and South African rand, trade the underlying securities and settle the underlying transactions in any of these four currencies.

We are currently speaking to existing South African managers that are looking to leverage the island’s infrastructure within the ETF space. This is a logical progression for South African managers, some of whom Maitland is assisting in their ambitions to set up funds and complete primary listings on the SEM.

As an example, one of these prospective clients is seriously exploring listing an active ETF on the SEM and instead of following beta, this client is mirroring a successful unit trust in South Africa, so it will not be tracking an index. Arguably it will be the first active ETF. Exciting as that is, the primary listing on the SEM and secondary, or reverse, listing into South Africa, makes this investment appealing to both the global and South African community. In addition, these types of structures can, for example, facilitate exposure to international REIT portfolios that are otherwise prevented by South Africa’s foreign exchange control regime. Trading in Mauritius provides exposure to international property stocks and global property funds within the Mauritius ETF structure. Another of our prospects is very close to finalising its Mauritian-based, fixed income fund across Africa. This fund is yet another example of the growing confidence that participating blue-chip investors from the United States, Europe and South Africa have in Mauritius. As a leading management company on the island, with visibility of our global client base (including in South Africa), we at Maitland are in the fortunate position of being able to see (and forecast) trends in the market. We are starting to see Mauritius consolidate its leading position as the gateway for Africa.

Investment plays

There are a number of themes, including (but not limited to) fixed income long plays, PE, RE, clean tech, infrastructure, REITs and ETFs. These have been in existence for a while, but are beginning to move to the next level of sophistication. Mauritius is clearly regarded as a “white flag” or compliant domicile of substance and the government is doing something right in its efforts to win the confidence of international investors and managers. For South African hedge and alternative managers, this presents a welcome diversification opportunity when one considers the challenges, and some would say crisis, in the local South African market. Mauritius certainly has further room for development, and although it has its own social issues, the society is incredibly safe. Anyone who has visited the island over the last 10 years would have noticed the marked changes on the coastline and in the countryside there is a widely accepted perception that the wealth held in Mauritius has risen 195% in US dollar terms in this period. In addition to a forward-thinking government and technical and legislative enablers, there are some practical reasons that alternatives are finding Mauritius an attractive destination. These include a bilingual, qualified workforce with the highest literacy rates in Africa, geographical proximity to South Africa, and time zones that are Europe and Asia friendly.

Two Emirates A380s fly in and out of the island every day – that is a lot of business-class seats, securing access from everywhere. And access for South Africans is incredibly easy, with free work visas that are requested on landing, and daily flights from South Africa via SAA, Air Mauritius, Air France and Austral. In short, Mauritius is going places and has the potential to make alternative investors’ ambitions a reality.

Claude Harvey

Senior Manager: Business Development and Client Management
Tel: +230 210 9334
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Maitland is licensed as required for the services it offers. For further information on the licence permissions applicable to your jurisdiction please visit our website at maitlandgroup.com. The content and opinions herein are for information purposes only. They are not intended to constitute legal, financial or other professional advice, and should not be relied upon as such or treated as a substitute for specific advice relevant to particular circumstances. Neither Maitland as a group nor any of its member firms or affiliated entities accepts any responsibility for any errors, omissions or misleading statements in this publication, or for any loss which might arise from reliance on the material. No mention of any organisation, company or individual, whether on these pages or not, shall imply any approval or warranty as to the standing and capability of any such organisations, companies or individuals on the part of Maitland. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. Please note that, whilst all reasonable care has been taken to ensure the correctness of this publication, the information may not be applicable for all jurisdictions. Read our Data Protection Policies.

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