Investment Fund (CIS/CEF)
A Fund is a structure whose activities involve the investment of funds and whose operation is based on the principle of diversification of risk
The Securities Act 2005 broadly provides for two categories of Funds:
- Open-ended Fund, also known as a Collective Investment Scheme (‘CIS’)
- Close-ended Fund, commonly known as the Private Equity (PE) Fund
Open-end Funds (commonly CIS)
Under the Securities Act 2005, a Collective Investment Scheme means:
(a) a scheme constituted as a company, a trust, or any other legal entity prescribed or approved by the Commission:
- Whose sole purpose is the collective investment of funds in a portfolio of securities, or other financial assets, real property or non-financial assets as may be approved by the Commission;
- Whose operation is based on the principle of diversification of risk;
- That has the obligation, on request of the holder of the securities, to redeem them at their net assets value, less commission or fees; and where the participants do not have day to day control over the management of the property, whether or not they have the right to be consulted or to give directions in respect of such management; and
(b) includes closed-end funds whose shares or units are listed on a securities exchange; but
(c) does not include such schemes as are specified in Part II of the Schedule of the Securities Act 2005 (e.g. a scheme or arrangement operated by a person otherwise than by way of business, an arrangement out of a life policy under the Insurance Act, an occupational pension scheme, a debenture, a scheme or arrangement that the regulations or the Commission, by notice, declare not to be a CIS.)
Categories of CIS
CIS – Global Scheme
While there are no prescribed minimum subscription amount from investors, in order to begin its operations, a Global Scheme must receive a minimum amount of subscription of at least 5% of the total amount to be raised from investors (or the amount prescribed under its offer document).
Should the minimum amount of subscriptions mentioned under the offer document not reached during the first 6 months of the offering period, funds received have to be returned to investors together with any interests earned thereon, unless the CIS can justify a request for extension and the FSC agrees to such an extension, which does not exceed a further 6 months.
Global schemes are subject to prescribed investment restrictions and practices under the Securities Legislation.
CIS – Expert Funds
A CIS may be authorized by the Commission as an expert fund, in which case, it shall be available to expert investors only, i.e. an investor who makes an initial investment, for his own account, of not less than USD100,000 or is a a sophisticated investor (e.g. statutory authority established by enactment, banks, CIS manager, investment adviser or dealer) or any similarly defined investor in any other securities legislation. The fund shall accept as investors in the fund, only such persons as the Board or CIS manager, where appointed, is satisfied are Expert Investors.
The CIS manager of an Expert Fund does not need to be resident in Mauritius. An Expert Fund may appoint a manager provided it holds a CIS manager licence issued by the FSC Mauritius or a licence issued by a regulatory body in a jurisdiction having comparable regulation as Mauritius for investor protection.
Expert Funds is exempt from several provisions of the Securities Regulations, but should ensure compliance with the prescribed provisions, including statements under its offer document that it shall be available only to expert investors.
CIS – Professional CIS
A CIS may operate as a Professional CIS where it is offering its shares solely to sophisticated investors or offering its shares as private placements.
A PCIS is exempt from complying with various provisions of the Securities Regulations provided that the shares acquired by its participants are not resold to the public and participants are advised of this restriction at the moment of subscription or otherwise the CIS is not listed for trading on a securities exchange, whether in Mauritius or elsewhere.
A CEF can also operate as a PCIS if classified as such by the FSC Mauritius or where it does not fall under the criteria of reporting issuers.
In any case, a PCIS benefits from the exemptions subject to notifying the regulator 15 days prior to making an offering and filing a copy of the relevant offer document and on conclusion of the offering, informing the regulator of the total amount and value of shares sold.
CIS – Specialised CIS
A specialized CIS is one that invests in real estate, derivatives, commodities or any other product authorized by the FSC.
A person wishing to establish a specialized CIS shall apply to the FSC for a decision as to whether or not such a scheme would be authorized. Prior to giving a decision the FSC shall determine which of the regulations would apply, whether specific rules should be issued and the conditions that would apply to such a scheme.
Closed-end Funds (commonly CEFs)
A CEF refers to an arrangement or a scheme, other than a CIS, constituted in a legal form that may be approved by the FSC and whose object is to invest funds, collected from subscribers during an offering by way of a prospectus or from sophisticated investors, in a portfolio of securities or other financial or non-financial assets or real property, as approved by the FSC.
A distinct feature of the CEF, as opposed to a CIS, is that an investor is not entitled to redeem its investments at any time. CEFs are more suited to Private Equity/Venture Capital Funds than Hedge Funds.
A CEF may appoint a CIS Manager or operate as a self-managed fund where the board of directors are subject to the provisions relating to a CIS Manager.
CEF – Reporting Issuer
The Securities Act define a reporting issuer as an issuer
(a) who has, by way of a prospetus, made an offer of securities;
(b) who has made a takeover offer by way of an exchange of securities or similar procedure;
(c) whose securities are listed on a securities exchange in Mauritius; or
(d) who has no less than 100 shareholders.
An issuer is a person or other entity that issues, has issued, or is going to issue securities. A prospectus refers to a notice, circular, advertisement or request inviting applications or offers from the public to subscribe for or purchase, or offering to the public for subscription or purchase, a share in, or debenture of, a company or proposed company; and includes a statement attached to or intended to be read with the prospectus.
CEFs that are reporting issuers are primarily those which are listed, make a public offering and has at least 100 shareholders.
CEF – Offering under Part V
Part V of the Securities Act requires that no person shall make an offer to the public, or distribute to the public, an application for an offer of securities unless a prospectus in a prescribed form has been provisionally registered with the FSC.
A person makes an offer or distribution to the ‘public’ where that person invites or solicit another person to:
(a) purchase or subscribe to securities never issued;
(b) enter into an agreement for the underwriting of securities;
(c) purchase securities underwritten;
(d) distribute securities previously offered without a prospectus; or
(e) purchase securities, other than securities acquired on a securities exchange in normal market operations, previously issued and held by a person, including and issuer, and where the offer or distribution is made from Mauritius or received in Mauritius.
An issuer may be exempt from the prospectus requirement provided it complies with the FSC Rules relating to the issue.
Thus, CEFs under Part V are similar to reporting issuers in that they both make public rather than private offerings.
CEF – Professional CIS
CEFs which are not listed or do not make public offerings or do not have at least 100 shareholders are classified as PCIS in terms of Regulation 75(2) and are subject to requirements applicable to PCIS.
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