Jersey’s value to the African opportunity
The unprecedented capital flows being committed to Africa can only accelerate in the coming years, and the international financial centre of Jersey will play a pivotal role in enabling such flows. Dr Desné Masie outlines the opportunities highlighted in her recent report
Says Allan Wood, Global Head of Business Development at Jersey Finance: “Jersey has a very strong commitment to supporting capital flows into Africa. The African opportunity, with its young and growing population, rising middle class and rapidly deepening capital markets, has seen unprecedented capital flows being committed to the continent in recent years. “We thought it would therefore be useful to explore these issues with South African fund managers and their investors now.”
Indeed as Wood says, the past two years have seen unprecedented capital commitments to Africa in foreign direct investment as the region becomes more economically and politically strategic. Over $200bn in foreign direct investment have been committed by China, Russia, the EU, Japan and UK during this period.
This push of international capital flows into the continent will only accelerate with the increased requirements for environmental, social and governance (ESG) factors to be taken into account of investments. Impact investing to facilitate economic and social development in Africa will provide high-yielding opportunities in sustainable finance.
South African fund managers are already ahead of the curve on this. The past two decades have seen South African private equity expertise facilitate investment into retail, consumer, real estate and infrastructure across the wider African continent.
They are facilitating these flows into the wider African continent, and they are
raising these funds across international capital markets, from America to Asia. In doing so, South African fund managers are primarily partnering with development finance institutions (DFIs).
There is a role for international financial centres (IFCs) to play in extending their financial expertise into these investments alongside private and institutional investors in a cost and tax-neutral setting with support from DFIs.
With such a wide mix of available global capital, investor appetite and opportunities for investing into Africa, the choice of fund domiciliation has never been more important, for both investors and fund managers looking for efficiency, stability and transparency.
Jersey has long been passionate about connecting African opportunities to the world with its highly regarded financial centre expertise, standards of governance and growing track record on the continent.
In 2014, the Jersey’s Value to Africa report set out the island’s ambition to connect global capital to the African continent, through its highly networked international footprint and efficient regulatory frameworks. Since then, the island has been strengthening its relationships in the key hubs of South Africa, Kenya and Nigeria, while global interest in the continent has increased.
In 2019, Jersey Finance sought to build on these insights and commissioned an independent research report from African Business magazine surveying more than 60 investors and fund managers operating in jurisdictions worldwide and with a connection to South African managers to discover the emerging trends for fund domiciliation and capital raising, particularly as a route for private equity impact investing into the wider African continent.
Overview of report findings: Jurisdictional stability is key
The report, South African Fund Managers: Trends in Fund Domiciliation and Capital Raising, was launched on 5 November 2020 with a webinar of experts, and also discussed the report structure and findings. The research looked at the drivers of domiciliation and capital raising from many perspectives.
As regards the spread of assets in our sample, the investors, and the DFIs – situated in the US, UK and EU – 100% of capital is invested internationally, and their substantial portfolios are not limited to Africa. Among GPs, our sample had around 60% of their capital committed internationally, with the managers all having a connection to South Africa, but their funds or special purpose vehicles domiciled across onshore and offshore jurisdictions – the majority in Mauritius, but also around 30-40% in Caymans and sub-Saharan Africa, and a smaller subset of around 10-15% of funds domiciled in Europe (mainly the UK, Dublin, Luxembourg and Jersey).
In relation to how funds end up in these jurisdictions, we found that choice ultimately rests with investors, although they are willing to be guided by the manager.
The investors in our sample with their significant international footprint have no particular preference to using a particular jurisdiction, provided the level of governance and regulation is sound.
Many SA private equity funds investing into Africa use Mauritius because of its geographical context and this has been the status quo for many years. This will, however, be complicated by Mauritius still being on the EU blacklist at the time of writing. Many managers we spoke were already considering redomiciling their funds into a more stable jurisdiction, and some investors warned if the issue was not resolved, they would be forced to move and restructure.
Ultimate factors leading to the choice of jurisdiction are also investor-led and this is determined by some key factors such as familiarity, cost, tax neutrality, regulation and governance, and the quality of local service providers and nonexecutive fund directors.
We find that, of these, top of mind for investors is the quality of the legal and regulatory framework, given the industry trend focused on transparency through anti-money laundering (AML), knowyour-customer (KYC) and substance provisions resulting in increased regulatory reporting and costs only further exponentialised by the recent push for ESG to be incorporated into investment decision-making.
We also found that South African fund managers, like many non-EU GPs, think that the Alternative Investment Fund Managers Directive (AIFMD) is not consistently applied, creating further hurdles to enter the EU. There is clearly an opportunity to facilitate non-EU capital raising from the UK and EU here for Jersey. The Island is independent of the UK and the EU and has private placement arrangements to market into both sides of the post-Brexit equation.
Political and fiscal stability is also an increasing factor, given the aforementioned geopolitical tumult due to Brexit, Covid-19, and the US-China trade war. Jurisdictions such as Jersey.
Jersey – a centre for excellence in African investment and networks Jersey has long been a centre for excellence in facilitating global capital flows and networks into Africa, with the chair and founder of Invest Africa, Rob Hersov, having some of his assets domiciled there. The Hersovs have been using Jersey for wealth management for three generations.
Another string to the island’s bow is that Rupert McCammon, the chair and founder of the largest African investment conference outside the continent, Afsic, also operates Afsic and Africa Capital Investments from the Island.
“Jersey has a very strong commitment to supporting capital flows into Africa.” Allan Wood, Global Head of Business Development at Jersey Finance
Rob Hersov, Chairman, Invest Africa