Fund managers take on an enormous responsibility. Making sure that their skill sets, deal making abilities and strategy is reflected in the contractual relationship they have with the fund or their limited partners is critical. QED Solutions has considerable experience advising private equity and fund managers on establishing these structures and the rules by which they operate.
A good part of QED Solutions’ advisory work has been to clients in private equity and fund management.
Private equity companies around the world use different structures but all of them must provide for a clear delineation between the managers or general partners and the investors or limited partners. At the same time, the managers are treated in a similar way to investors when it comes to the allocation of profits generated from investing activities above a pre-determined hurdle rate. Typically in South Africa, the En Commandite, Limited Partnership or Bewind Trust structures are used. The commercial terms between managers and investors vary widely depending on the type of fund, be it in asset management, infrastructure funds, traditional private equity or hedge funds. But each activity has unique features.
Compliance with relevant legislation such as the Financial Intermediary and Advisory Services Act and regulatory bodies like the Financial Services Board is critical for fund management activities.
In some cases, professional managers cannot participate or invest funds directly in the fund they manage and their relationship must be governed by a stand-alone management agreement. These need to be carefully considered so that they are compliant with applicable legislation and regulations but still provide for the benefits of private equity investing – notably the issue of carried interest. The particular rules surrounding Black Economic Empowerment increasingly has bearing on how these funds should be structured.
Investors are now looking to develop exposure to other fast-growing African countries and funds, in order to attract and make investments in several different countries. This requires clear thinking on the appropriate off-shore structures that can serve as a gateway into Africa. QED Solutions can provide incisive advice on the two principles off-shore structures currently used, namely the South Africa’s Headquarter Company regime and the Mauritius Global Business Licence regime.