4.5. South African private equity funds (Capital Transfers)

Private equity funds that are members of the Southern African Venture Capital Association, mandated to invest outside the CMA, may apply to the Financial Surveillance Department, via an Authorised Dealer, for approval to invest offshore. The following information must accompany such applications:

(a) a copy of the local en-commandite partnership’s mandate to invest outside the CMA or in the case of a local fund running parallel with an offshore fund, a copy of the co-investment agreement between the local and foreign partnership;

(b) cash flow projections for a 36-month period indicating the amount of capital to be exited from South Africa for investment purposes; and

(c) the percentage equity interest and voting rights acquired in the foreign target entity.

(d) Private equity funds with authorised foreign assets may invest in South Africa, provided that where South African assets are acquired through an offshore structure (loop structure), the investment is reported to an Authorised Dealer as and when the transaction(s) is finalised as well as the submission of an annual progress report to the Financial Surveillance Department via an Authorised Dealer. The aforementioned party also has to view an independent auditor’s written confirmation or suitable documentary evidence verifying that such loop transaction(s) are concluded on an arm’s length basis, for a fair and market related price.

The information called for in subsection (i) above must be furnished by the Authorised Dealer to the Financial Surveillance Department and should, inter alia, include the name(s) of the South African affiliated foreign investor(s), a description of the assets to be acquired (including inward foreign loans, the acquisition of shares and the acquisition of property), the name of the South African target investment company, if applicable and the date of the acquisition as well as the actual foreign currency amount introduced including a transaction reference number.

Existing unauthorised loop structures (i.e. created by private equity funds prior to 2021-01-01) and/or unauthorised loop structures must still be regularised with the Financial Surveillance Department.

(e) Institutional investors must be aware that in terms of the ‘look-through’ principle, any offshore acquisitions held indirectly via the local private equity fund must be marked off against the respective foreign portfolio investment allowances. The Financial Sector Conduct Authority Regulations governing the permissibility of these investments as part of their portfolios must also be complied with.