Overview

Historically low interest rates, substantial dry powder, and investors’ relentless pursuit of yield have propelled the expansion of the fund finance market. As we look ahead to 2025, we anticipate ongoing robust growth characterised by rising demand for innovative financing structures and a broader diversification of lenders. In Mauritius, subscription lines of credit have emerged as the predominant form of fund financing. However, as the market matures, alternative financing options such as Net Asset Value (NAV) based loans, hybrid facilities, and general partner (GP) financing are gaining traction. In 2024, we observed a notable trend towards more bespoke financial solutions tailored to meet evolving client needs, reflecting the increasing sophistication of fund managers and their investors.

As new lenders enter the fund finance space, borrowers can expect increasingly competitive financing terms. While the fund finance market has traditionally been U.S. and European-centric, Asia’s explosive growth in the private equity sector is prompting an expansion into new geographical territories. In 2025, we anticipate that Asia and other emerging markets will play a significant role in the global fund finance landscape, contributing to its overall expansion.

However, the fund finance market is not static; it is subject to regulatory changes that could impact fund structures, leverage ratios, and disclosure requirements. Market participants must remain vigilant and adaptable to these changes. Investors are drawn to fund finance due to its relatively low risk and predictable returns, particularly during economic downturns. Nevertheless, potential obstacles – such as unforeseen regulatory shifts, macroeconomic factors, or a significant decrease in commitment levels – warrant careful consideration.

Private equity funds in Mauritius

Mauritius has established itself as a prominent hub for global funds, including private equity, thanks to its robust regulatory framework overseen by the Financial Services Commission (FSC). Since 2001, the FSC has implemented a flexible set of guidelines and a consolidated regulatory framework, which includes the Securities Act 2005, the Financial Services Act 2007, and various regulations governing collective investment schemes (CIS) and closed-end funds.

The regulatory framework

The regulatory environment in Mauritius is designed to promote transparency, investor protection, and the integrity of the financial system. The FSC plays a pivotal role in overseeing the activities of financial institutions and ensuring compliance with international standards. This robust regulatory framework is a significant factor in attracting foreign investment and establishing Mauritius as a reputable jurisdiction for fund management.

Key regulatory bodies

Financial Services Commission (FSC)

The FSC is the primary regulatory authority for non-banking financial services in Mauritius. It is responsible for licensing and supervising various financial entities, including fund managers, CIS, and securities dealers. The FSC aims to maintain a fair, efficient, and transparent financial market.

Bank of Mauritius (BoM)

While the BoM primarily oversees the banking sector, it also plays a role in regulating the broader financial system. The BoM’s policies can indirectly impact the fund finance market, particularly regarding interest rates and monetary policy.

Mauritius Revenue Authority (MRA)

The MRA is responsible for tax administration in Mauritius. Its policies and regulations regarding taxation can significantly influence fund structures and investment decisions, making it essential for fund managers to stay informed about any changes in tax legislation.

Fund formation and structure

The current regulatory framework recognises two primary categories of global funds: open-ended funds (CIS); and closed-end funds (private equity funds). These funds can be structured as companies under the Companies Act 2001 or as limited partnerships (LPs) under the Limited Partnerships Act 2011. The flexibility of the Mauritian LP structure allows foreign investors to participate without being involved in day-to-day management, while the GP retains responsibility for managing the fund’s affairs.

Key structures for private equity funds

Limited partnerships (LPs)

The LP structure combines features of both a corporation and a partnership, allowing for limited partners to enjoy liability protection while not participating in day-to-day management. The GP manages the fund and is personally liable for the debts of the partnership, providing a clear delineation of roles and
responsibilities.

Variable capital companies (VCCs)

Introduced by the Variable Capital Companies Act 2022, the VCC structure offers significant flexibility, allowing for the creation of multiple sub-funds under a single legal entity. Each sub-fund can have distinct investment objectives, and the VCC can operate without the automatic winding up of all sub-funds if one faces challenges. This structure is particularly advantageous for private equity and hedge funds seeking to segregate assets and liabilities.

Protected cell companies (PCCs)

The PCC structure allows for the creation of separate cells within a single company, providing asset protection and liability segregation. This is particularly useful for investment funds that wish to isolate risks associated with different investment strategies.

Trusts

Established under the Trusts Act 2001, trusts can be utilised for specific investment purposes, providing flexibility in structuring investments and managing assets for the benefit of designated beneficiaries.

Special purpose vehicles (SPVs)

SPVs are often established to isolate financial risk. They can be used for specific projects or investments, allowing fund managers to segregate assets and liabilities associated with particular ventures.

Fund financing solutions

As the private equity sector matures in Mauritius, the demand for financing solutions is increasing. Fund managers are exploring various options to meet their capital needs, including:

Equity Bridge Facilities: These short-term loans assist private equity funds in managing liquidity during capital calls, enabling swift execution of investment opportunities. They are often used to bridge the gap between the time a fund identifies an investment opportunity and when it can draw down capital from investors.
NAV-Based Margin Loans: Hedge funds are increasingly utilising NAV-based loans to provide liquidity or leverage, allowing them to capitalise on market opportunities without liquidating positions. This financing solution is particularly attractive during periods of market volatility when quick access to capital is essential.
Hybrid Facilities: These facilities combine elements of traditional debt financing with structured finance solutions, allowing for tailored financing arrangements that meet specific fund requirements. Hybrid facilities can include features such as revolving credit lines combined with term loans.
GP Financing: As GPs seek to enhance their investment capabilities, financing options that support GP commitments and operational needs are gaining traction. This type of financing can help GPs meet their capital contributions and fund operational expenses, ensuring they have the necessary resources to manage the fund effectively.

Security structures for fund financing

The security structure for fund financing transactions in Mauritius typically involves assignments of capital commitments and rights to make capital calls. While funds have traditionally been structured as corporations, the introduction of LPs has simplified the investment landscape, allowing for more tax-efficient structures and reducing the need for complex master-feeder arrangements.

Security for fund financing often includes:

Security Assignment: Funds assign their capital commitments and rights to make capital calls to lenders, providing a clear mechanism for lenders to access funds in case of default. This assignment is often documented through a security agreement that outlines the terms of the assignment.
Charge on Assets: A charge may be placed on the fund’s other assets, including accounts, investments, and negotiable instruments, ensuring that lenders have recourse to a broader range of collateral. This charge provides additional security to lenders, enhancing their confidence in the financing arrangement.
Power of Attorney: In typical fund financing transactions, a power of attorney may be granted to the lender, allowing them to exercise capital call rights on behalf of the fund in case of default. This provision ensures that lenders can act swiftly to protect their interests if the fund encounters financial difficulties.
Subordination Agreements: In some cases, funds may enter into subordination agreements, which establish the priority of claims among different classes of creditors. This can be particularly relevant in complex financing arrangements involving multiple lenders.

Recent regulatory developments

Several key developments in Mauritius’ regulatory framework have further enhanced the fund finance landscape:

Variable Capital Companies Act 2022: This act allows for the creation of VCCs, providing fund managers with a flexible structure that can accommodate various investment activities while protecting investors’ assets. The VCC structure is seen as a significant advancement, enabling funds to adapt to changing market conditions and investor preferences.
Securities (Preferential Offer) (Amendment) Rules 2023: These amendments clarify the definition of ‘issuer’ and streamline the registration process for debt securities, aligning regulations with current market practices. This simplification is expected to encourage more companies to explore debt financing options, thereby expanding the market.
Amendments to the Companies Act 2001: Recent changes include requirements for public companies to maintain gender diversity on boards and updated procedures for shareholder meetings. These amendments reflect a broader commitment to corporate governance and social responsibility within the Mauritian business environment.
Amendments to the Financial Services Act 2007: Licensees must submit independent compliance reports, enhancing transparency and accountability within the financial sector. This requirement is aimed at strengthening regulatory oversight and ensuring that financial institutions adhere to best practices.
Amendments to the Securities Act: The definitions of ‘closed-end fund’ and ‘collective investment scheme’ have been expanded to include money market instruments and debt instruments, reflecting the evolving nature of investment strategies. This expansion allows for greater flexibility in fund structuring and investment options.

Impact of regulatory developments

The recent regulatory developments in Mauritius have had a profound impact on the fund finance market. By providing a more flexible and transparent framework, these changes have encouraged both domestic and international investors to consider Mauritius as a viable jurisdiction for their fund operations. The introduction of VCCs, in particular, has positioned Mauritius as a leader in innovative fund structures, allowing fund managers to respond more effectively to investor demands and market dynamics.

Moreover, the emphasis on corporate governance and transparency aligns with global trends towards responsible investing and environmental, social, and governance (ESG) considerations. As investors increasingly seek to align their investments with their values, the regulatory framework in Mauritius is evolving to meet these expectations, further enhancing the attractiveness of the jurisdiction.

Looking ahead

As we move into 2025, the fund finance market is poised for continued evolution and innovation. Fund managers, finance providers, and industry stakeholders must remain adaptable to leverage emerging trends and opportunities that drive sustainable growth. The integration of technology and digitisation is revolutionising fund finance operations, enhancing efficiency and transparency.

Key trends to watch:

Sustainable Finance: With ESG considerations gaining prominence, fund finance providers are increasingly incorporating sustainability criteria into their lending and investment decisions. This trend reflects a broader shift towards responsible and impactful financing practices within the fund finance market. As institutional investors place greater emphasis on ESG factors, funds that prioritise sustainability may gain a competitive edge in attracting capital.
Technological Advancements: The adoption of digital platforms and advanced data analytics is streamlining lending processes and enhancing risk assessment capabilities. Emerging technologies, such as blockchain and artificial intelligence, are expected to play a significant role in transforming fund finance operations. As technology continues to evolve, stakeholders must embrace these changes to remain competitive and improve operational efficiency.
Alternative Lending Models: Peer-to-peer lending, crowdfunding, and other non-traditional financing platforms are emerging as viable options for fund managers seeking flexible and tailored funding solutions. This diversification of the fund finance ecosystem is indicative of a more dynamic market landscape, where traditional financing methods may be supplemented or replaced by innovative alternatives.
Increased Regulatory Scrutiny: As the fund finance market grows, regulatory authorities are likely to increase scrutiny of fund operations and financing arrangements. Fund managers must stay informed about potential regulatory changes and ensure compliance to mitigate risks associated with non-compliance.
Global Economic Factors: The global economic environment will continue to influence the fund finance market. Factors such as interest rate fluctuations, inflation, and geopolitical events can impact investor sentiment and capital flows. Fund managers must remain vigilant and adaptable to navigate these external challenges effectively.
Investor Education and Engagement: As the fund finance landscape becomes increasingly complex, the need for investor education and engagement will grow. Fund managers will need to communicate effectively with their investors, providing transparency around investment strategies, risks, and performance. Building strong relationships with investors will be critical to maintaining trust and securing future capital commitments.

In conclusion, the private equity fund sector in Mauritius is set for a promising year in 2025, characterised by innovation, regulatory adaptability, and a commitment to meeting the diverse needs of investors. Our dedicated Mauritius Fund Finance Team is prepared to support stakeholders in capitalising on these emerging opportunities while navigating the complexities of the market. As we embrace the challenges and opportunities that lie ahead, we remain optimistic about the resilience and growth potential of the fund finance market in Mauritius.

Final thoughts

The evolution of the fund finance market in Mauritius reflects broader global trends towards innovation, sustainability, and regulatory compliance. As the market continues to mature, stakeholders must remain proactive in adapting to changing dynamics and leveraging emerging opportunities. The private equity fund sector in Mauritius is well positioned to thrive in the coming years, driven by a robust regulatory framework, a commitment to transparency, and a focus on responsible investing.

As we look to the future, collaboration among fund managers, investors, and regulatory bodies will be essential in fostering a vibrant and sustainable fund finance ecosystem. By working together, stakeholders can navigate the complexities of the market and drive positive outcomes for all participants. The Mauritian fund finance landscape is poised for exciting developments in 2025 and beyond, and we are excited to be part of this journey.

First published by Global Legal Group as the Mauritius chapter for Global Legal Insights – Fund Finance 2025, January 2025