We all like to talk about Mauritius being this lighthouse for Africa, this great offshore  centre and while we have certainly done some good things there, I do not see how we will be able to move up to the next level, particularly in Africa unless we improve our understanding of finance.  Yes we can do some back- office Net Asset Value calculations because we have a decent and relatively cheap accounting base here and, let us face it, the tax efficiency of the destination vis - à - vis India and others helps a lot too.  But  what  about  private  equity,  what  about  asset  management,  what about  more  sophisticated  treasury  management  beyond  the  basics  that  the  South  Africans  and British send us to replicate?   When it comes to value added services, we still have a long way to go in Mauritius not because we, as some wrongly believe, do not have any human capital  skills to do  so  (although  the  pool  is  quite  limited  due  to  the  reasons  discussed  before)  but  because  we have not focused in this area enough.  

Let  me  give  a  simple  example  based  on  my  own  very relevant experience to prove a simple point.   A few years ago,   a few colleagues and I decided to set up an African equity  fund  that  would  be  truly  diversified  across  the region  at  a  time  when  African  markets  were  crashing down.  Some  of  us  who  understood  markets  could  see the opportunity of a lifetime once the tightening cycle of monetary  policy  in  both  Kenya  and  Nigeria  would  end and  asset  rotation  towards  equities  would  once  again take place (even moderate rotation would be enough).   It was  also  very  clear  that  in  less  liquid  markets,  near monopolies  or  market  leaders,  which  had  limited  free  floats  but  were  growing  at  an  impressive pace  (free  cash  flows),   would  see  their  share  prices  soar  once  investor  sentiment  would  turn positive.  

It is not easy to create a fund from scratch and thanks to the entire team and group I   worked for, we were able to not only make timely investments into many markets but had some of the best performances in the African equity space. It is not often that you hear about Mauritian companies managing funds that are beating the South Africans, the British firms and the infamous Americans at their own game, but we did it, not for a few months, but for more than two and a half years.   The relative  performance  is  frankly  even  more  impressive  when  one  considers  the  resources differential  between  an  upcoming  local  firm  and  an  American  one!  The  biggest  difficulty  for anyone  wishing  to  set  up  a  specialized  Africa  focused  fund  was  and  is  not  the  fund  where  the right  people  can  get  the  right  performance  or  even  the  structure  of  a  firm,  but  the  genuine difficulties in fundraising when you are a small firm based in Mauritius. 

In  general  and  beyond  my  experience,  it  may  be  easy  and  theoretical  to  talk  about  the  need  to dilute shareholdings in Mauritius and take up international partners, but in this asset management and private equity business, nobody will talk unless you can put tens of millions of dollars on the table,  something  not  all  of  us  can  do  here.  When  you  still  lack  credibility,  you  need  to  bring  in more  seed  capital,  else,  it  would  be  easier  for  the  international  partner  to  simply  take  your  staff away and move them to the United Kingdom! Some have even asked me why private equity firms or such funds cannot list themselves on the market and raise the cash since the country is awash with excess liquidity.  

Well,  simple,  say  you  wish  to  raise  money  for  an  African  fund  you  create.   Your license does matter.  A  specialist  fund  investing  in  Africa  cannot  just  go  and  raise  money  in  the  market  via  a listing,  it  is  not  for  everyone  and  you  probably  already  need  to  find  your  institutional  investors anyway,  which  defeats  the  purpose  of  listing.  Of course launching a managed equity fund, for example, is not a closed ended fund or ETF, and it simply will not work the same way.   There may be  excess  liquidity  in  the  system but  a  lot  of  this  is  temporary  (Government  foreign  borrowings deposited  at  commercial  banks  when  coupled  with  a  fall  in  the  demand  for  credit  from  the indebted corporate sector) and there is an obvious mismatch between the time this excess may be here with   us and the investment horizon of a fund which can be up to 5 years and even higher for private equity funds.  

Lastly,  Mauritians  care  more  about  capital  guarantied  products  which  rely  more  on  exotic options  that  may  be  based  on  purely  equity  and  hedge - able  assets  or  based  on  systematic investment strategies (Constant Proportion Portfolio Insurance strategy for example) based on a whole  pool  of  funds.  Basically,  those  who  have  been  in  this  market  know  very  well  that  listing some  private  equity  funds  or  mutual  funds  in  the  local  stock  market  beyond  convenience  listing will not get you much. The question of firm shareholder dilution and reluctance to do so does not pose itself at the mutual fund level.  

I firmly believe that policy makers should sit with those who understand asset management and private equity and better understand their needs.  Frankly  development  economics  is  no  longer what  we  need  to  see  from  the  advisors  of  policy  makers,  but  more  so  an  understanding  of modern finance. 

On  the  private  equity  space,  I  have  often  written  about  the  need  to  turn  this  country  into  a boutique  private  equity  hub  focused  not  on  those  large  heavy  weight  projects  that  the  Chinese, Americans and Indians have the money and expertise to do, but on the medium sized companies that also need financing in the Eastern and Southern parts of the continent.  We should focus on scope  and  scale  with  private  equity  placements  in  sectors  we  understand.  We  understand agriculture, especially sugar, we understand how to set up clinics and   we understand how small and  medium  enterprises  and  commercial  real  estate  projects  that  tag  along  with  increased urbanization work and grow.  

By Sameer K Sharma 

Sameer Sharma is  a  chartered  alternative  investment  analyst  and  a  certified  financial  risk  manager.  This article reflects solely the personal views of the author.