While investment in African innovation and enterprise is touted as a rapidly growing frontier, a less celebrated trend is quietly reshaping the landscape: the increasing propensity for Africa-focused fund managers (whether VC or PE funds) to domicile their investment vehicles far beyond the continent’s shores. From the sun-kissed beaches of Seychelles to the quietly affluent lanes of Guernsey, a significant portion of capital earmarked for Africa is being legally parked in offshore jurisdictions.
Recent fundraises across the sector highlight this geographical disconnect. Ventures Platform, a prominent backer of African tech startups, is based in Guernsey. Helios Investment Partners, a private equity heavyweight on the continent, also calls the Channel Island home. LoftyInc Alpha, another active investor, is anchored in the United States, while TIDE Africa II, focused on the continent’s digital economy, chose Mauritius. Even established pan-African players like Janngo Capital opt for European domiciles, in their case, France.
Data underlines this migration. A recent GIZ-sponsored report, “Unlocking Capital for Emerging Female Investment Vehicle Managers in Africa,” reveals that a striking 35% of established Investment Vehicle Managers (IVMs) targeting Africa are domiciled in Mauritius and Seychelles. Europe accounts for 23%, the USA for 19%, while a surprisingly meagre 16% are headquartered locally within Africa itself.
This exodus raises a critical question: why are those entrusted with deploying capital into the often-complex, yet undeniably dynamic, African markets choosing to legally reside their funds thousands of miles away, often in jurisdictions synonymous with low taxation and financial discretion? And what does this trend portend for the ambition of fostering truly indigenous and self-sustaining financial ecosystems on the continent?
Guernsey: A Case Study in Channel Island Calm
Guernsey, a self-governing speck of land in the English Channel, presents a prime example of this offshore allure. It may seem an improbable nexus for African investment, yet its appeal to fund managers is meticulously crafted, a blend of regulatory pragmatism and, let’s not mince words, tax efficiency.
Guernsey, like other offshore financial centres, delicately markets its tax regime as “tax neutral.” For fund managers and their Limited Partners (LPs) — the pension funds, endowments, and wealthy individuals who provide the capital — this translates into a potentially lighter tax burden. While Guernsey insists on adherence to international standards and “substance,” sceptics might arch an eyebrow at the concentration of mailbox-plate companies and the undeniably advantageous tax environment. The island, ever so politely, presents itself as a facilitator of global capital flows, not a tax haven — a subtle but crucial distinction in the carefully worded pronouncements of its financial authorities.
Beyond taxation, Guernsey boasts a regulatory framework meticulously tailored for investment funds. Its legal system, rooted in English common law but with a distinct Channel Island twist, offers a perceived stability and predictability highly prized by LPs. Imagine the soothing whispers in the ears of risk-averse institutional investors: “Guernsey regulation — it’s like London, but… calmer.” This regulatory certainty, coupled with a deep bench of experienced professional service providers — lawyers, accountants, administrators — creates an ecosystem designed to streamline fund formation and ongoing management. Setting up shop is, by all accounts, a remarkably friction-free experience, a stark contrast perhaps to the bureaucratic intricacies sometimes encountered in less established jurisdictions.
Geographically, while undeniably European, Guernsey enjoys a certain remove from the often-intense regulatory glare of larger financial capitals. It sits comfortably within time zones convenient for both European and African stakeholders and offers excellent connectivity to global financial hubs. One might even suggest a certain discreet charm to its location — a place where financial affairs can be conducted with a degree of quietude, away from the clamour of Wall Street or the scrutiny of the City of London.
For fund managers opting for offshore domiciles, the justification often boils down to pragmatic necessity, almost a shrug of ‘it’s just business.’ They argue that it’s not about shadowy dealings, but rather about constructing the most efficient vehicle to attract capital and, ultimately, deliver superior returns — the holy grail in the world of finance.
“Limited Partners (LPs) are out to make money. They are not Don Quixotes charging at windmills,” one fund manager who chose anonymity told Launch Base Africa. “They are capitalist institutions that seek to maximize capital and returns. Why would you invest millions of dollars or euros in a less reputable jurisdiction instead of in more robust, stable, and predictable countries? That is why you see these GPs rushing to these remote places for domiciliation, such as Guernsey and Jersey. You chase the capital first before nationalism. If you want to break into a party with the largest pool of capital, play by the rules first — other things will necessarily follow. Again, there are other ways to configure and reconfigure these things.”
This argument paints offshore domiciliation as a necessary evil, a mere adaptation to the demands of a globalized financial system. By optimizing their structure, funds contend they can attract larger commitments from LPs, leading to greater capital deployment into African ventures. Essentially, the offshore domicile becomes a lubricant, easing the flow of capital towards the continent. One might almost admire the Darwinian efficiency — funds evolving to thrive in a competitive ecosystem, even if that ecosystem is, arguably, tilted in favour of offshore havens.
Yet, the offshore drift is far from universally applauded. Critics raise uncomfortable questions about the ethical implications and the broader message sent when Africa-focused funds gravitate towards tax-efficient havens, seemingly distancing themselves from the very continent they profess to support.
“We could argue about the appropriateness or otherwise of it,” a Lagos-based ecosystem builder said. “Domiciling your fund in offshore jurisdictions may not exactly match the ambition of African countries to become competitive economies, but then you can see how opaque most governments are in regulating VCs and PEs. The capital markets are also not deep. But how long will this continue? Offshore havens represent lost jobs and lost taxes back home.”
Concerns extend beyond optics. While legal tax optimization is distinct from illegal tax evasion, the concentration of Africa-focused capital in offshore jurisdictions raises eyebrows. It can be perceived as a detachment from the “spirit” of investing in Africa, fostering a sense of neo-colonial financial architecture where capital flows out, is processed offshore, and selectively redeployed — often on terms dictated by external actors. One might even detect a hint of irony: funds designed to foster self-reliance legally seeking shelter in jurisdictions historically associated with dependency.
Moreover, proponents of local domiciliation argue for the tangible benefits of keeping funds, expertise, and even modest tax revenues onshore. Developing robust regulatory frameworks within African nations, nurturing local fund management talent, and ensuring a greater alignment of financial interests with continental development goals are all seen as crucial steps towards greater financial sovereignty and sustainable growth. South Africa, with its more developed financial infrastructure and higher prevalence of locally domiciled funds (albeit often domestically focused), is sometimes presented as a counter-model — a reminder that onshore alternatives, however challenging, are not entirely absent.
The Bottom Line
The increasing trend of offshore domiciliation for Africa-focused VC funds is not a simplistic tale of villains and victims. It reflects a complex interplay of global financial realities, investor demands, regulatory asymmetries, and ethical considerations. Fund managers are operating within a system with its inherent biases and incentives, while LPs are bound by fiduciary responsibilities to maximize returns for their beneficiaries.
Whether this offshore drift represents a pragmatic pathway to channeling essential capital to African economies, or a more insidious erosion of local financial capacity, remains a hotly debated question. What is undeniable is that this trend has significant implications for the future trajectory of African private capital and warrants continued, and increasingly critical, examination as the continent’s investment landscape matures — or perhaps, continues to subtly migrate.
