Legal regime affecting multi-US$bn private equity funds opportunity

Chief Executive Officer of Oasis Capital Matthew Boadu Adjei

Ghana is missing out on a multi-billion-dollar private equity funds sector – which is an alternative fund asset – due to conditions such as the legal regime.

Globally, alternative fund assets are forecasted to exceed 60 per cent compound growth between 2017 and 2023 to US$14trillion. However, the decision as to where to domicile an alternative fund remains a crucial first step for any fund manager.

At the launch of the legal and tax paper on the suitability of Ghana for consideration for Private Equity (PE) and Venture Capital (VC) fund domiciliation, Chief Executive Officer of Oasis Capital Matthew Boadu Adjei highlighted that although Ghana is a growing private equity fund domicile, the current legal system – which does not allow for limited partnership (LP) – is not conducive to the traditional private equity/venture capital LP/General Partner structure.

Ghana currently has over 35 PE and VC funds operating in the country; however, of this figure only five of them have funds domiciled in the country… representing a significant gap.

“Currently, the Ghana domicile fund is about US$150million; but this could be multibillions if we had such changes in the country,” Mr. Adjei said.

“If you want Private Equity to be functional and to do well and be attractive, then we must learn what others have done over the years. We don’t need to reinvent the wheel.  Growth can be phenomenal – because if we had a conducive environment for private equity there wouldn’t be a need for investors to go and register their funds in Mauritius, accounting for about 90 percent of alternative fund investing being registered in Africa,” he emphasised.

The limited partnership structure that is conducive to private equity/venture capital allows the general partner to have unlimited liability for the fund’s losses or debts, while the limited partner has limited liability protection – that is, they cannot lose their personal assets – against the fund’s losses or debts, thus enabling limited partnerships which are globally recognised structures for PE/VC funds that allow limited partners to take on limited liability

By international standards, these vehicles are considered tax transparent or ‘pass-through’ entities, which do not pay corporate income tax. Thus, income and gains cumulated in the fund are passed to the investor… who pays tax. This pass-through tax treatment is therefore a critical aspect in the formation of a PE/VC fund, and jurisdictions that do not afford such treatment are not considered attractive destinations to register a PE/VC fund.

In contrast, favourable tax regimes with robust legal systems, such as Luxembourg and Mauritius, are well-known international fund jurisdictions.

“So ,we need to make those changes if we want to be attractive and the centre for domiciliation,” the CEO of Oasis Capital said.

Nonetheless, there are currently seven key indicators which make Ghana a suitable fund domicile. These include licencing regime; corporate governance structures; investment categories; investor agreements and protection; exit options; as well as tax incentives and regulatory regimes for foreign investment.

Chief Executive Officer (CEO) of Ghana Venture Capital Trust Fund (VCTF), Yaw Owusu-Brempong said: “One key aspect we need to get right to attract foreign investors into Ghana is fund domiciliation.

“Venture capital, for instance, is supposed to invest in funds that are domiciled in Ghana. Some funds may want to raise funds here, but because they are domiciled outside of the country we cannot invest in them. So, the issue of domiciliation is very key for venture capital and private equity.

“In Ghana, we have only limited liability when it comes to funding management; when people invest in funds there are plans to exit, but when it is limited liability you will have challenges when exiting. However, in other jurisdictions there is a limited partnership; and that is what we are appealing for so the limited partnership is introduced in Ghana,” he said.


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