The Evolving Nigerian Private Equity Landscape: Finally Coming of Age?

REGULATORY FRAMEWORK

For the most part, the massive expansion of private equity in Nigeria has occurred in spite of government. While some other African governments have been known to offer sweeteners to court private equity, in Nigeria almost nothing has been done.

Save for adjustments to the Pension Fund Investment Regulations issued by the National Pension Commission (“Pencom Regulations”) and the introduction in 2013, of rules for the registration of certain private equity funds by the Securities and Exchange Commission (“SEC”) there is only one other law, which arguably relates to private equity in Nigeria, and that is the Venture Capital (Incentives) Act (“VCA”)¹

There is no federal legislation regulating the registration of limited partnerships, which are the preferred structure worldwide for setting up and managing private equity funds. The Companies and Allied Matters Act (“CAMA”)² only provides for the registration and regulation of business names and the Corporate Affairs Commission (“CAC”) does not specifically register limited partnerships. Although the CAMA does not specifically restrict the categories of activities for which business names can be registered, over the years the CAC has developed a shortlist of activities and has configured its systems based on this limited list. In practice, it is still possible to register a private equity limited partnership as a business name at the CAC however the process will normally entail some alteration of object clauses.

On the other hand, Lagos State currently maintains a limited partnership registry pursuant to provisions of the Partnership Law of Lagos State, Cap P21 Laws of Lagos State 2003 (as amended) however it is not clear if other states in Nigeria are bound to recognize the registration with the Lagos State Limited
Partnership Registry.

With the SEC Regulations that apply to private equity, there are also some challenges. Firstly, the rules only apply with respect to funds with a minimum commitment of N1billion of investors’ funds. Notably, the rules do not include any specific obligations for fund managers to be registered (although they stipulate that fund managers must have a minimum share capital as prescribed by the SEC). Secondly, the rules define private equity funds as “a type of collective investment scheme...”³ but further stipulate that private equity funds are not to solicit funds from the public. The foregoing aside, the SEC rules mainly prescribe details to be contained in the information memorandum to be shared with prospective investors together with basic reporting requirements; but sadly do not include any significant provisions for investor protection. Not all gloomy, as the provisions with respect to private equity investments in the Pencom Guidelines⁴ are significantly more detailed. They seek to prescribe the kinds of private equity funds in which Nigerian pension fund assets may be invested. Critical criteria for eligibility include – (i) that the manager is registered with the Nigerian SEC as a fund manager, (ii) that up to 75% of the fund is to be invested in Nigeria⁵, and (iii) that the fund manager retain a minimum investment in the fund⁶.

The VCA was enacted in 1993 and does not strictly speaking, relate to private equity. It seeks to provide certain tax incentives to venture capital companies who are defined in the law more restrictively than the term is generally used in practice. However, most of the incentives in the VCA are either