Private Equity Fund structures

January 20, 2020 - 9 min read


Every Private Equity Fund is unique in itself when it comes to operations, and its structure differs accordingly. By devising a robust investment strategy, Fund Managers are able to mitigate business risks in order to foresee an optimistic overview on Internal Rate of Returns and impact where applicable.

The concept of fund structuring is highly debatable for the reason that the Fund Managers must be cautious when analysing macro/micro economic indicators as well as the regulatory framework in the core regions. In practice, Fund Managers will seek professional advices from lawyers, financial consultants, investment strategists, tax advisers, and fund administrators (such as Sunibel Corporate Services) amongst others, prior to conceiving the optimum structure.


Mauritius, an attractive platform for establishing Private Equity Funds

Many factors make Mauritius one of the preferred platform for foreign investment to emerging economies such as India and African countries. Mauritius is a transparent International Financial Centre that has a stable political environment, a well regulated, a diversified economy. It also boasts a simple and effective tax system, an educated work force, and a good technology infrastructure.

Mauritius - the preferred jurisdiction for investment and Private Equity funds - Sunibel Corporate Services

International indexes rank Mauritius first in Africa for many categories, especially for the ease of doing business (13th internationally on the World Bank’s ‘Ease of Doing Business’ ranking) or the Mo Ibrahim Index of African Governance (IIAG), amongst many others.

More than 1,000 Global Funds have selected Mauritius to structure their operations, its economy being among the top in Africa in terms of stability and prosperity. Through its setting up in Mauritius, a Global Fund can take advantage of the following benefits:

  • Be listed on the Stock Exchange of Mauritius (“SEM”)
  • Capital Gains Tax exemption
  • Tax liability of 15%, subject to an 80% Partial Exemption Regime, bringing the effective tax rate up to a maximum of 3% on specific sources of income in Mauritius
  • No withholding tax on dividends, interests or royalties
  • No exchange control and free repatriation of profits
  • No compulsory participation of local investors in global funds
  • Information concerning the Fund is not available for public inspection
  • Access to the vast network of Double Taxation Avoidance Agreements


It is important to note that the Fund Managers or promoters consider and evaluate various Private Equity investment structures prior launching their Funds. Proper feasibility study, screenings, expertise and on boarding of valuable advisers are critical to best structure a Private Equity. They also need evaluate the most appropriate International Financial Centre, one that will be allow them to have an efficient and performant Fund and that brings them the most advantages.

We have gathered for you, a snapshot of the main types of investment structures.


Private Equity Fund structured as a Company

Such type of Private Equity Fund structure is very familiar among Fund Managers with a focus towards the African continent. The interactions among the various stakeholders are clear and concise starting from the investors to the portfolio companies.

The main constitutive documents involved in such type of structure are usually the Private Placement Memorandum, the Shareholders’ Agreement, the Management Agreement, the Administration Agreement, and the Side Letters among others.

The role of the Fund Manager – with the assistance of and support from Sunibel Corporate Services (as Fund Administrator) – is to ensure that the Capital Calls from the investors are properly deployed as per Management Agreement with the Private Equity. In such context, the investment decision process is critical to ensure viable investments in portfolio companies. On the other hand, during the disinvestment period, distribution waterfall must be applied accordingly.

Generally, the major advantage for investors is that they are exposed to limited liability. If anything goes wrong during the investment process (bankruptcy, lawsuits, litigation, etc.), only the capital that the investors have committed is at risk.

Other key benefits of such Fund structure include:

  1. Transparency
  2. High levels of governance
  3. Diversification of portfolio
  4. Lower investment risks
  5. Well regulated
  6. Expertise
  7. Management incentives
  8. Commitment to success
  9. Proven returns


Private Equity Fund structure – Trust

A Private Equity that is structured as a Unit Trust is a type of collective investment governed by a trust deed. The investors are usually the main beneficiaries of the Trust.

The Fund’s Net Asset Value (NAV) divided by the number of units outstanding determines the price of each unit of the Trust. The NAV of a Fund is the market value of the Fund’s net assets (investments, cash and other assets less expenses, payables and other liabilities). The NAV is generally calculated on a daily basis to reflect the variations in the prices of the investments held by the Fund.

The Trustee or multiple trusted advisors are accountable for the overall supervision of the Fund. The Fund must operates according to applicable laws and Trust documents.

The major advantages of this Fund structure include:

  1. Cost-effective and greater economies of scale (such as reduced transaction costs)
  2. Lower investment risks
  3. Diversification of portfolio investments
  4. Professional advisers involved


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Private Equity Fund structured as a Limited Partnership

In the Fund universe, the investors are called Limited Partners. “Limited” because their liability is restricted to the amount of funds they have invested in the Fund. On the other side, we have the General Partners (GPs), who are referred to as the Fund Managers. GPs have the responsibility to source, make and exit investments on behalf of the fund. They act according to the Limited Partnership Agreement. To put a cap on this potentially unlimited liability, many GPs are in fact Limited Companies or Limited Partnerships.

From the above Private Equity Fund structure, we note that:

  • The Fund has been formed for the specific purpose of investing money
  • The investment manager ensures the proper structuring of the partnership, and is in charge of managing the funds being raised
  • The General Partner of the Fund will be organised as a Limited Partnership under the control of the investment manager. The General Partner of the Fund is responsible for taking all investment decisions for the Fund.

For instance, when an investment is made, the General Partner makes a capital call to its Limited Partners (LPs) in order to receive the capital required to make the investment. Investors (individual and institutional – such as pension funds, insurance companies, investment funds, Family Offices and funds-of-funds) agree to detailed terms of investment, as detailed in the Limited Partnership Agreement.

The main advantages of Private Equity using such structure are:

  1. Limited risks
  2. Tax benefit
  3. General Partners controls the fund: no managerial burden for investors who do not want to be actively involved in the daily management of their investment capital
  4. Greater investment opportunities
  5. Limited liabilities
  6. Expertise
  7. Proven returns


Private Equity Fund structure – Master Fund or Feeder Fund

A Feeder Fund is an investment vehicle that consists in the pooling of capital commitments from investors. A Feeder Fund invests, or feeds this capital, into an umbrella fund, often called a Master Fund (Main), which directs and oversees all investments held in the Master portfolio.

Private Equity Funds or Hedge Funds frequently use a Master-Feeder structure to gather investment capital. The sharing of profits can be made on a pro-rata basis among the Feeders, in proportion to the amount of their investment.

The concept of Feeder Funds allows the Master Fund (“Main Fund”) to accommodate investment in the Fund by one or more investors:

The Master Fund uses that capital injection to invest in securities and, by doing so, generate profit or loss. The profit or loss that the Master Fund is generating is subsequently distributed to all of the Master Fund’s constituent feeders. From the Master Fund’s viewpoint, each Feeder is an investor (feeds capital to the Fund).

A Feeder Fund investing in a Master Fund is comparable to buying shares in any other security. However, when a Feeder Fund invests in a security, it will not be able to gather data about the underlying investment. On the other hand, a Feeder Fund will have more data on its investment if the capital is invested in the Master Fund. This allows for the tax attributes (e.g. dividends, income etc.) to flow from the Master to the Feeder.

The main advantages of a Master-Feeder Fund structure are:

  1. Less administrative burden
  2. Greater financing benefits (greater returns)
  3. Diversification of portfolio
  4. Risk mitigation
  5. Flexible legal structure
  6. Reduced transactional/operational costs


Private Equity Fund structured as a Protected Cell Company

A Protected Cell Company (PCC) can be used for CIS and closed-ended (Private Equity) fund. Indeed, umbrella funds can be structured using a PCC whereby each cell can hold a specific CIS fund.

The key advantage of this Private Equity Fund structure is the administration: recurrent transactions can be completed much quicker. The implementation of a framework of administrators, managers, Investment Managers and custodians allows for quick investment decisions through the addition of new cells under the PCC, previously agreed by the Financial Services Commission (FSC) of Mauritius.

Other benefits of such structure include:

  1. Tax planning : a PCC is treated as a single legal entity for tax purpose
  2. Segregation of business and investment risks: a PCC provides flexibility and protection if the core or one of its cell becomes insolvent
  3. A PCC provides for diversification of portfolio companies and spreading of risks
  4. Lower running costs due to simpler administration and shares overhead costs

From the investors’ standpoint, the Protected Cell Company is an interesting option that allows them to diversify their investment risks in a number of sub-funds – that have different investment strategies – under the same umbrella structure or to switch their investments between sub-funds. Having recourse to a PCC structure also depends on the risk appetite of the Manager of the Fund. A PCC will suit in leveraging its competitive advantage vis-à-vis macro-economic indicators/volatility of the market.

Click here to learn more about Protected Cell Companies


How can Sunibel help in your Private Equity Fund project?

Sunibel Corporate Services has experience in the setting up different fund structures in Mauritius. We provide tailor-made Fund services to funds established in several jurisdictions:

  • Fund Formation and setting-up of an Investment Manager
  • Independent Directorship
  • Acting as Company Secretary
  • Accounting services and shadow accounting for existing funds
  • Provision of registered office facilities
  • Business and facilitation services and transactional support
  • Advisory services
  • Net Asset Value (NAV) calculation
  • Shareholder servicing
  • Financial Report preparation
  • Audit coordination and liaison
  • Strong Investor Relations;
  • Tax computation and filing services
  • Purchase and redemption of shares
  • Performance Fee Equalisation
  • Tax administration services and tax advisory


You want to set up your Fund in Mauritius? Contact us via the contact form below:

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This article is provided for information purposes only. It is not intended to provide, and should not be used for, tax or legal advice. We may put you in contact with tax and legal advisers in this regard.

Although all information and opinions contained herein have been compiled from sources believed to be reliable and trustworthy, no representation or warranty, express or implied, is made as to their accuracy or completeness, and, to the extent permitted by law, Sunibel Corporate Services Ltd (“Sunibel”), its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in the article or for any decision based on it. You should not act upon the information contained in this publication without obtaining specific professional advice.

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