Mauritius Investment Funds

Mauritius Investment Funds

Foreword This memorandum has been prepared for the assistance of those who are considering the formation and regulation of Mauritius investment funds. It deals in broad terms with the requirements of Mauritius law. It is not intended to be exhaustive but merely to provide brief details and information which we hope will be of use to our clients. We recommend that our clients and prospective clients seek legal advice on Mauritius law in respect of their specific proposals before taking steps to implement them. Before proceeding with the formation of an investment fund in Mauritius, persons are advised to consult their tax, legal and other professional advisers in their respective jurisdictions. This memorandum has been prepared on the basis of the law and practice as at the date referred to below. Conyers Dill & Pearman February 2013 Page 2 of 25

TABLE OF CONTENTS 1. INTRODUCTION 2. COLLECTIVE INVESTMENT SCHEMES 2.1 Generally 2.2 Categories of Collective Investment Schemes 3. CLOSED-END FUNDS 3.1 Generally 3.2 Categories of Closed end Funds 4. CONCLUSION SCHEDULES Annexure A: Summary of Regulations pertaining to Fully Regulated Collective Investment Schemes Annexure B: Summary of Regulations pertaining to Regulated Global Collective Investment Schemes Annexure C: Summary of Regulations pertaining to Professional Collective Investment Schemes Annexure D: Summary of Regulations pertaining to Expert Funds Annexure E: Summary of Regulations pertaining to Closed end Funds Page 3 of 25

1. INTRODUCTION Investment funds in Mauritius are governed by The Securities Act 2005 (the Act ), the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007, The Securities (Licensing) Rules 2007, the Securities (Public Offers) Rules 2007 and The Securities (Collective Investment Schemes and Close ended Funds) Regulations 2008 (the Regulations ). Investment funds are divided into two broad categories, those that are Collective Investment Schemes and those that are Closed end funds. 2. COLLECTIVE INVESTMENT SCHEMES 2.1 Generally Collective Investment Schemes are defined by the Act and can be constituted as a company, trust or other such entity approved by the Financial Services Commission (the FSC ). The four key features of a Collective Investment Scheme are as follows: The sole purpose of the entity is the collective investment of funds in a portfolio of securities or other financial assets, real property or non financial assets approved by the FSC; The operation of the entity must be based on the principle of the diversification of risk; The investors must be entitled to redeem their interests; and The investors do not have day to day control over the operations of the entity. Page 4 of 25

It should be noted at this stage that the definition of a Collective Investment Scheme in the Act also includes Closed end Funds that are listed on a securities exchange. This is dealt with in more detail in the discussion of Closed end Funds below. 2.2 Categories of Collective Investment Schemes In terms of the Regulations, Collective Investment Schemes can be broken down into the following categories: (a) Fully Regulated Collective Investment Schemes Fully Regulated Collective Investment Schemes ( Fully Regulated CIS ), which are mainly offered to the public, are Collective Investment Schemes that (i) do not fall within any of the exemptions applicable to Professional, Specialised and Expert Collective Investment Schemes as set out below and (ii) generally do not hold a Global Business licence. All of the Regulations and none of the exemptions apply to such Fully Regulated CIS. A short summary of the Regulations that apply to such Fully Regulated CIS is set out in Annexure A. (b) Regulated Global Collective Investment Schemes A Global scheme is a Collective Investment Scheme that holds a Category 1 Global Business Licence and it may or may not be regulated in another jurisdiction. A Regulated Global Scheme is a Global Scheme that is authorised to carry out the activities of a Collective Investment Scheme by the FSC, however it does not fall within the specific categories of a Professional, Specialised or Expert Collective Investment Scheme ( Regulated Global Scheme ). Most of the Regulations apply to Regulated Global Schemes, but there are significant exemptions and a summary of these is set out in more detail in Annexure B. (c) Professional Collective Investment Schemes Professional Collective Investment Schemes ( Professional CIS ) are Collective Investment Schemes that offer their shares (i) to sophisticated investors, or (ii) as a Page 5 of 25

private placement. In addition, the FSC also has the discretion to classify Collective Investment Schemes that do not fall within (i) and (ii) as a Professional CIS. According to the Act, a sophisticated investor means: The Government of Mauritius; A statutory authority or agency established by an enactment for a public purpose; A company wholly owned by the Government of Mauritius, statutory authority or aforesaid agency; The government of a foreign country or agency of such a government; or A bank, a Collective Investment Scheme Manager (defined by the Act as a person holding a Collective Investment Scheme Manager Licence issued under the Act) ( CIS Manager ), an insurer licensed in Mauritius, an investment adviser licensed in Mauritius, an investment dealer licensed in Mauritius or a person declared by the FSC to be a sophisticated investor. The Act defines a private placement as an offer of securities where the total cost of subscription is an amount in excess of the amount determined by the FSC rules. To date the FSC has not issued any rules on this point. Closed end Funds which are not reporting issuers (see discussion of Closed end Funds below for definition of reporting issuers ) are also classified as Professional CIS. Closed end Funds that are reporting issuers are regulated separately and this is dealt with in more detail below. Professional CIS are exempt from much of the Regulations, so long as the interests of the Professional CIS (i) cannot be resold to the public and participants are advised of this restriction at the moment of subscription and (ii) they are not listed on a securities exchange, whether in Mauritius or elsewhere. Page 6 of 25

A short summary of the Regulations that apply to a Professional CIS is set out in Annexure C. (d) Specialised Collective Investment Schemes Specialised Collective Investment Schemes ( Specialised CIS ) are Collective Investment Schemes that invest in real estate, derivatives, commodities or other products authorised by the FSC. A Collective Investment Scheme that wishes to be designated as a Specialised CIS must apply to the FSC to be authorised as such. As part of this process, the FSC will decide which of the Regulations will apply to that Specialised CIS and whether any further terms and conditions should be applied. (e) Expert Funds A Collective Investment Scheme can apply to the FSC to be authorised as an Expert Fund based on the condition that the scheme is only available to expert investors. The Regulations define an expert investor as either (i) an investor that makes minimum initial investment for his own account in an amount of not less than USD100,000 or (ii) a Sophisticated Investor as defined by the Act (see paragraph (c) above). The investment manager of an Expert Fund either needs to hold a Collective Investment Scheme Managers Licence or must hold a licence issued by a regulator in a jurisdiction having comparable regulation as Mauritius for investor protection. A Mauritius Collective Investment Scheme seeking to invest on the National Stock Exchange of India through a Securities and Exchange Board of India sub account would normally be categorised as an Expert Fund. A short summary of the Regulations that apply to Expert Funds is set out in Annexure D. Page 7 of 25

3. CLOSED-END FUNDS 3.1 Generally Closed end Funds are required by the Act to be authorised by the FSC, but they are exempt from most of the Regulations. A Closed end Fund is defined by the Act as being an arrangement or scheme, other than a collective investment scheme, constituted in such legal form approved by the FSC, whose object is to invest funds either collected from subscribers during an offering made under Part V of the Act (effectively offers to the public see below), or from Sophisticated Investors (see above) and to invest those funds in securities, financial or non financial assets, or real property, as may be approved by the FSC. A Closed end Fund may be listed on the Mauritius Stock Exchange, which allows investors to freely buy and sell the shares in the Closed end Fund on the market. It should be noted that a the key feature of a Closed end Fund is that it, while being similar to a Collective Investment Scheme, does not fall within the definition of a Collective Investment Scheme. One of the requirements of a Collective Investment Scheme is that an investor must be able to redeem its interests. Generally an investor in a Closed end Fund is not entitled to redeem its investment and therefore they do not fall within the definition of a CIS. Accordingly, Closed end Funds are more suited to Private Equity/Venture Capital type funds than to Hedge Funds. Part XI, Sub Part A of the Regulations applies to all Closed end Funds that are (i) reporting issuers or (ii) are filing a prospectus in accordance with Part V of the Act, with the intention of applying for a listing on a securities exchange. 3.2 Categories of Closed-End Funds In terms of the Regulations, Closed end Funds can be broken down into the following categories: (a) Closed end Funds that are reporting issuers Page 8 of 25

According to the Act, a reporting issuer is an issuer: who has by way of a prospectus, made an offer of securities; who has made a takeover offer by way of an exchange of securities or similar procedure; whose securities are listed on a securities exchange in Mauritius; or who has not less than 100 shareholders. An issuer means a person or any other entity that issues, has issued or is going to issue securities. A prospectus means 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. Accordingly, Closed end Funds that are reporting issuers are primarily those that are listed, make a public offering or have 100 or more shareholders. (b) Closed end Funds subject to Part V Part V of the 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. For the purposes of the Act, a person makes an offer or distribution to the public where that person invites or solicits another person: to purchase or subscribe to securities that have never been issued; to enter into an agreement for the underwriting of securities; to purchase securities underwritten; Page 9 of 25

to distribute securities previously offered without a prospectus; or to purchase securities, other than securities acquired on a securities exchange in normal market operations, previously issued and held by a person, including an issuer, and where the offer or distribution is made from Mauritius, or received in Mauritius. Section 70 of Part V of the Act goes on to exempt issuers of securities through private placement from the prospectus requirement, provided that such an issuer complies with the FSC Rules relating to the issue of such securities. Therefore, much like Closed end Funds that are reporting issuers, Closed end Funds that are subject to Part V are those that make public offerings rather than private placements. A summary of the regulations applying to Closed end Funds that are reporting issuers and to Part V Closed end Funds is set out in Annexure E. (c) Closed end Funds that are not reporting issuers Closed end Funds which are Closed end Funds that are neither listed nor do they make a public offering, nor do they have 100 or more shareholders. In terms of Regulation 75(2)(a) they are classified as Professional CIS and are subject to the requirements relating to Professional CIS as set out above and in Annexure C. Page 10 of 25

ANNEXURE A REGULATIONS APPLYING TO FULLY REGULATED COLLECTIVE INVESTMENT SCHEMES ( FULLY REGULATED CIS ) The constitutive documents of a Fully Regulated CIS must contain details of the matters contained in the first or second schedule to the Regulations, as well as conditions for replacement of the CIS Manager, custodian, directors, trustee or a member of the governing body. Except in limited circumstances where the FSC allows the Board of Directors to manage a Fully Regulated CIS, it must have a CIS Manager incorporated in Mauritius, with its place of business in Mauritius and (unless otherwise authorised) the CIS Manager must be engaged solely in the business of the management of Collective Investment Schemes. The assets of a Fully Regulated CIS cannot be held for safekeeping other than by someone licensed as a custodian who shall be independent of the CIS Manager and who must have a licence issued by the FSC. There are detailed rules relating to the application for the authorisation of a Fully Regulated CIS which require that the following documents be filed at the time of the application: o constitutive documents of the scheme, o prospectus in the form set out in the 4th schedule to the Regulations, o personal questionnaires completed by each of the officers of the Fully Regulated CIS, o letter of acceptance to act as custodian, and o audited financial statements. Page 11 of 25

The FSC can grant the application for authorisation, subject to any terms and conditions that the FSC considers desirable for the protection of investors. The prospectus must set out details with regards to a minimum amount of subscriptions and at least 5% of the total amount must be raised within 6 months failing which the funds raised shall be returned to the investors. The FSC may on application grant a further 6 months. Costs of formation can be borne by Fully Regulated CIS, the manager or promoter. The FSC can withdraw its authorisation of a Fully Regulated CIS if conditions of authorisation are no longer satisfied, it is undesirable for investors or potential investors that the Fully Regulated CIS should continue to be authorised or the applicant for the authorisation has provided false information to the FSC. Exculpation clauses in respect of manager, administrator, custodian or any other person which reduce liability for failure to exercise due care and diligence in the discharge of their functions are null and void. Amendments and alterations to a Fully Regulated CIS must be notified to FCS and where required, approved by investors. The FSC must grant prior approval to (which it must do within 10 days unless further information is required): o the appointment of officer, CIS Manager or custodian; or o the change in ownership/acquisition of managers. The FSC must also grant approval to change of custodian or CIS Manager as must shareholders in terms of constitutive documents. A Fully Regulated CIS must appoint a custodian holding a custodian licence granted in terms of the Act, who shall keep the assets in Mauritius, unless they need to be held outside of Mauritius, then they can be held by a sub custodian appointed with Page 12 of 25

the approval of the FSC. The custodian and any sub custodian must be independent of the CIS Manager and the Fully Regulated CIS. The custody agreement must cover certain matters relating to the custody, location, method of holding of the assets, standard of care to be exercised and further must limit encumbrances to claims for fees and expenses. In terms of the Regulations, the custodian has enhanced liability for failure to perform or properly perform its obligations and further it has reporting responsibilities to the FSC in relation to certain breaches by the CIS Manager or the Fully Regulated CIS. A Fully Regulated CIS must appoint a CIS Manager licensed by the FSC, unless the FSC on application allows the board of directors of the Fully Regulated CIS to manage the assets of the Company. In terms of the Regulations, there are permitted activities relating to the operation of the Fully Regulated CIS, as well as restrictions on the activities of a CIS Manager. The Regulations also set out the liability and general duties of a CIS Manager and impose extensive conduct of business rules on CIS Managers. All Fully Regulated CIS are to be audited. The auditors must be independent and they are required to report certain matters to the FSC such as material defects in internal control. The CIS Manager is required on behalf of the Fully Regulated CIS to file with the FSC, the prospectus, the audited annual accounts and quarterly interim financial statements. The audited annual accounts and quarterly interim financial statements are made public. Constitutive documents form an integral part of the prospectus which is required to cover certain matters and contain such information necessary to make an informed decision as to whether to invest in the Collective Investment Scheme. Page 13 of 25

Significant changes and new information are required to be updated in the prospectus and filed with FSC. This can be done by way of an addendum, but FSC can require a new prospectus if it deems it appropriate. The Net Asset Value of the Fully Regulated CIS is to be calculated once a week unless a longer period is approved by the FSC. Suspensions of the redemption and repurchase of shares can only be for a maximum of 30 days and subscriptions are not allowed during this period. Notice must be given to the FSC and must also be published in 2 daily papers (or notice must be given to investors by other reasonable means). The prospectus must set out valuation procedures as well as procedures for valuing illiquid assets. The advertising of the offering of shares in Mauritius must be approved in advance by the FSC. Except under limited circumstances the constitutive documents cannot be amended without the consent of the FSC and the shareholders. General meetings of participants are required and there are prescribed proxy, quorum and voting rules. A special meeting is required to amend the constitutive documents, to terminate the Fully Regulated CIS and to increase or add fees. There are prescribed investment restrictions and investment practices including a limitation on borrowing, but the FSC can grant exemptions to these restrictions and practices. A fund of funds investing into a foreign fund is required to file the prospectus of that fund with the FSC. There are also diversification requirements in respect of fund of funds which do not apply if the Fully Regulated CIS is designated as a feeder fund. Page 14 of 25

The Fully Regulated CIS must give notice to the FSC of any bankruptcy or winding up petitions served on the CIS Manager or custodian and of any steps taken to protect the interests of participants. Page 15 of 25

ANNEXURE B REGULATIONS APPLYING TO REGULATED GLOBAL COLLECTIVE INVESTMENT SCHEMES ( REGULATED GLOBAL SCHEME ) The constitutive documents must contain details of the matters contained in the first or second schedule to the Regulations, as well as conditions for replacement of CIS Manager, custodian, directors, trustee or a member of the governing body. A Regulated Global Scheme may appoint an investment manager established in a foreign jurisdiction, subject to the approval of the FSC. The assets of a Regulated Global Scheme cannot be held for safekeeping other than by someone licensed as a custodian who shall be independent of the CIS Manager and who may subject to the approval of the FSC be established in a foreign jurisdiction. Applications for the authorisation of a Regulated Global Scheme are made to the FSC and shall include: o A prospectus in the required form; o The constitutive documents of the Regulated Global Scheme; o Measures relating to anti money laundering; o Audited accounts if applicable; and o A personal questionnaire from all officers. The authorisation of a Regulated Global Scheme is contingent on: o Provision of required information on manager and custodian; o Appointment of an administrator in Mauritius; Page 16 of 25

o Accounting and reporting to be done in Mauritius; o Required health warning in the prospectus; o Details of regulation in any other jurisdiction; o The FSC being satisfied with anti money laundering procedures. The prospectus must set out details with regards to a minimum amount of subscriptions and at least 5% of the total amount must be raised within 6 months failing which the funds shall be returned to the investors. The FSC may on application grant a further 6 months. Costs of formation can be borne by the Regulated Global Scheme, the manager or promoter. The FSC can withdraw their authorisation of a Regulated Global Scheme if the conditions of authorisation are no longer satisfied, or if it is undesirable for investors/potential investors that the Regulated Global Scheme should continue to be authorised or if the applicant for the authorisation has provided false information to the FSC. Exculpation clauses in respect of the manager, administrator, custodian or any other person which reduce liability for failure to exercise due care and diligence in the discharge of their functions are null and void. Amendments and alterations to a Regulated Global Scheme must be notified to FCS and where required, approved by investors. The FSC must grant prior approval to (which it must do within 10 days unless it requires further information): the appointment of an officer or CIS, CIS manager, or custodian; or the change in ownership/acquisition of CIS Managers. Page 17 of 25

The FSC must also grant approval to a change of custodian or CIS Manager as must shareholders in terms of constitutive documents. All Regulated Global Scheme must appoint a custodian holding a custodian licence granted in terms of the Act, but they are not required to keep the assets in Mauritius. The custodian and any sub custodian must be independent of the CIS Manager and the Regulated Global Scheme. The custody agreement must cover certain matters relating to the custody, location, method of holding of the assets, standard of care to be exercised and further must limit encumbrances to claims for fees and expenses. In terms of the Regulations, the custodian has enhanced liability for any failure to perform or properly perform its obligations and further it has reporting responsibilities to the FSC in relation to certain breaches by the CIS Manager or the Regulated Global Scheme. A Regulated Global Scheme is not required to appoint a CIS Manager licensed by the FSC. All Regulated Global Schemes are to be audited. The auditors must be independent and they are required to report certain matters to the FSC such as material defects in internal control. The CIS Manager is required on behalf of the Regulated Global Scheme to file with the FSC, the prospectus, the audited annual accounts and quarterly interim financial statements. For Regulated Global Schemes the audited annual accounts and quarterly interim financial statements are not made public unless the FSC deems it to be required. The constitutive documents form an integral part of the prospectus which is required to cover certain matters and contain such information necessary to make an informed decision as to whether to invest in the Collective Investment Scheme. Page 18 of 25

Significant changes and new information are required to be updated in prospectus and filed with the FSC. This can be done by way of an addendum, but the FSC can require new prospectus if it deems it appropriate. The calculation of the net asset value of the Regulated Global Scheme is to be done once a week unless a longer period is approved by the FSC. Suspensions of the redemption and repurchase of shares can only be for a maximum of 30 days and subscriptions are not allowed during this period. Notice must be given to the FSC and must also be published in 2 daily papers (or notice must be given to investors by other reasonable means). The prospectus must set out valuation procedures as well as procedures for valuing illiquid assets. The advertising of the offering of shares in Mauritius must be approved in advance by the FSC. Except under limited circumstances the constitutive documents cannot be amended without the consent of the FSC and the shareholders. Regulated Global Schemes are not required to conduct their general meetings in accordance with the Regulations. There are prescribed investment restrictions and investment practices including a limitation on borrowing, but the FSC can grant exemptions to these restrictions and practices. A fund of funds investing into a foreign fund is required to file the prospectus of that fund with the FSC. There are also diversification requirements in respect of fund of funds which do not apply if the Regulated Global Scheme is designated as a feeder fund. Page 19 of 25

A Regulated Global Scheme must give notice to FSC of any bankruptcy or winding up petitions served on the CIS Manager or custodian and of steps taken to protect the interests of participants. Page 20 of 25

ANNEXURE C REGULATIONS APPLYING TO PROFESSIONAL COLLECTIVE INVESTMENT SCHEMES ( PROFESSIONAL CIS ) Professional CIS are exempted from Parts II X of the Regulations (effectively most of the Regulations governing Fully regulated CIS and Regulated Global Schemes as set out in annexures A and B above), provided that the shares acquired by the investors are not resold to the public (the investors must be told of this restriction at the time) and further provided that the Professional CIS is not listed for trading on a securities exchange. A Professional CIS must notify the FSC of its offering a minimum of 15 days before the offering is made and it must file a copy of its prospectus with the FSC at the same time. At the conclusion of the offering, the Professional CIS must advise the FSC of the total amount and value of the shares sold. A Professional CIS must give notice to FSC of any bankruptcy or winding up petitions served on the CIS Manager or custodian and of steps taken to protect the interests of participants. The FSC has the authority to allow a departure from these rules. Page 21 of 25

ANNEXURE D REGULATIONS APPLYING TO EXPERT FUNDS Application shall be made to the FSC to be authorised as an Expert Fund. The following documents application: and information shall be submitted along with the o A copy of the prospectus; o The constitutive documents of the expert Fund; o Measures relating to anti money laundering; o Latest audited accounts if applicable; and o Information relating to the manager An Expert Fund may appoint a licensed CIS Manager in Mauritius or a manager with a licence granted in a jurisdiction having comparable regulation for investor protection. The prospectus of an Expert Fund shall contain the definition of Expert Investor, shall state that the offering is only available to expert investors and shall contain a disclosure in a prescribed to form to the effect that the FSC does not vouch for the financial soundness of the fund or any of the contents of the prospectus and further that investors are not protected any investor compensation scheme in Mauritius. Expert Funds are required to file audited financial statements with the FSC. Expert Funds must give notice to FSC of any bankruptcy or winding up petitions served on the CIS Manager or custodian and of steps taken to protect the interests of participants. Page 22 of 25

ANNEXURE E REGULATIONS APPLYING TO CLOSED-END FUNDS THAT ARE REPORTING ISSUERS AND TO CLOSED-END FUNDS THAT ARE SUBJECT TO PART V ( CEF ) A CEF which does not hold a Category 1 Global Business Licence must apply to be authorised by the FSC in the same way that a Fully Regulated Collective Investment Scheme would. There are detailed rules relating to the application for the authorisation of such a CEF which require that the following documents be filed at the time of the application: o constitutive documents of the scheme, o prospectus in the form set out in the 4th schedule to the Regulations, o personal questionnaires completed by each of the officers of the CEF, o letter of acceptance to act as custodian, and o audited financial statements. Applications for the authorisation of a CEF that will hold a Category 1 Global Business Licence are made to the FSC in the same way that a Global Collective Investment Scheme would and shall include: o a prospectus in the required form; o the constitutive documents of the CEF; o measures relating to anti money laundering; Page 23 of 25

o audited accounts if applicable; and o personal questionnaires completed by each of the officers of the CEF. CEFs are required at all times to have a CIS Manager in accordance with the regulations and the CIS Manager is subject to the provisions relating to CIS Managers under the Act and the Regulations, including certain of the conduct of business rules. Unless the CEF holds a Category 1 Global Business Licence, its annual audited financial statements and it quarterly financial statements shall include the disclosures required by the sixth and seventh schedules to the Regulations. The prospectus of a CEF must comply with the provisions of Part V of the Act and shall include the disclosures set out in the fifth schedule to the Regulations. Page 24 of 25

This publication is not a substitute for legal advice nor is it a legal opinion. It deals in broad terms only and is intended merely to provide a brief overview and give general information. About Conyers Dill & Pearman Founded in 1928, Conyers Dill & Pearman is an international law firm advising on the laws of Bermuda, the British Virgin Islands, the Cayman Islands and Mauritius. With a global network that includes 140 lawyers spanning eight offices worldwide, Conyers provides responsive, sophisticated, solution driven legal advice to clients seeking specialised expertise on corporate and commercial, litigation, restructuring and insolvency, and trust and private client matters. Conyers is affiliated with the Codan group of companies, which provide a range of trust, corporate, secretarial, accounting and management services. www.conyersdill.com Page 25 of 25