Collective Investment Scheme: Close-end Funds

As advanced in a previous article, a Collective Investment Scheme (CIS) is a scheme that is constituted as a company, a trust, or any other legal entity 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. It includes closed-end funds whose shares or units are listed on a securities exchange.

What are Closed-end Funds (CEFs)?

A Closed-end Fund is an arrangement or scheme, other than an Open-end Fund, that is constituted in a legal form that may be approved by the FSC. Its object is to invest in 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. These must be approved by the FSC.

As opposed to an Open-end Fund, an investor in the CEF cannot redeem its investments at any time. As such, these schemes are more suited to Private Equity/Venture Capital Funds than Hedge Funds. Nonetheless, a CEF can 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.

Categories of CEFs

There are several categories of Close-end Funds. These are:

  • Reporting issuer: It is defined by the Securities Act as 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 no less than 100 shareholders.

CEFs which are reporting issuers are primarily those which are listed, which make a public offering and has at least 100 shareholders.

  • Offering under Part V: According to Part V of the Securities Act, no person shall make an offer to the public, or distribute to the public, or make 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 to the public when he/she invites another person to:

  • purchase or subscribe to securities never issued;
  • enter into an agreement for the underwriting of securities;
  • purchase securities underwritten;
  • distribute securities previously offered without a prospectus or
  • 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.

If an issuer complies with the FSC Rules relating to the issue, he/she may be exempt from the prospectus requirement.

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 have to follow the requirements applicable to PCIS.

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