The regulation of the private equity fund in South Africa

Master Thesis


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University of Cape Town

This study examined the challenges confronting private equity funds. These funds face governance challenges, including a lack of transparency and disclosure to investors. Investor protection in leading jurisdictions ranges from voluntary self-regulation, to minimal regulatory measures and an exhaustive regulatory approach. These approaches have, however, proven limited with regard to both application and their effectiveness in promoting investor protection, and market efficiency. Two methods have been identified to address governance challenges. The legal tools include facilitating transparency, the disclosure of information and the promotion of investor protection. These tools include:1) A negotiated structural approach, with side letters that provide individual investors with information and the establishment of an advisory board with limited control over the fund's operations; and 2) A co-regulatory approach, which combines contractual, self-regulation, and financial regulations to address governance challenges efficiently and effectively. Both methods have potential to address the governance challenges and increased investor concerns that have arisen as a result of the manner in which private equity funds operate. The approach suggested by this study is based on an understanding of private equity as an asset class. The approach is effective and efficient. It encourage sand promotes investor protection, while at the same time promoting the South African private equity industry as a flexible and lucrative market. There has been limited critical legal assessment of governance mechanisms in the context of private equity. This study thus contributes to the body of knowledge on the legal assessment of private equity funds.

Includes bibliographical references