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Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003)

Amended Codes of Good Practice (2013)

Amended Code Series 100: Measurement of the Ownership Element of Broad-Based Black Economic Empowerment

Statement 100: The General Principles for Measuring Ownership

Key measurement principles

3.10 Private equity funds

 

3.10 PRIVATE EQUITY FUNDS

 

3.10.1 A Measured Entity may treat any of its Ownership arising from a Private Equity Fund as if that Ownership were held by Black people, where the Private Equity Fund meets the following criteria:

 

3.10.1.1 At least 51 % of any of the Private Equity Managers' Exercisable Voting Rights associated with the Equity Instruments through which the Private Equity Fund holds rights of Ownership, must be held by Black people;

 

3.10.1.2At least 51% of the Private Equity Fund's Executive Management and Senior Management must be Black people;

 

3.10.1.3 At least 51 % of the profits made by the Private Equity Fund Manager after realising any investment made by it, must by written agreement, accrue to Black people;

 

3.10.2 The term profit in this instance is deemed as profit from the operations of the Private Equity Fund Manager and the carried interest that the Private Equity Fund Manager (and/or its associated entities, provided that at least 51 % of the profits of the associated entities accrue to the Private Equity Fund Manager) receives after realising any investment made by it;

 

3.10.3 The Private Equity Fund Manager must be a B-BBEE owned company as defined;

 

3.10.4 The Private Equity Fund Manager must seek to invest at least 51 % of the value of funds under management in companies that have at least a 25% direct Black shareholding using the Flow Through Principle;

 

3.10.5 the Private Equity Fund Manager can facilitate direct Black shareholding at the time of entering into the transaction should the target company not meet the requirement of at least 25% Black shareholding at the time that the transaction is concluded;

 

3.10.6 This determination will be made at each measurement date and the status given to the Private Equity Fund Manager will be applicable for a period of 12 months;

 

3.10.7 In recognition of the fact that it is currently a challenge for Private Equity Fund Managers to find companies to invest in that already have a significant Black shareholding, in practice it should be allowed to achieve the 51 % target over a period of time based on the formulation detailed below. (It must be noted that this formulation is in line with that of the Net Value calculation above). This rule will apply to all investments made after 11 October 2014. The commencement date is the later of 11 October 2014 and the date of establishment of a new fund;

 

3.10.8 Within one year from the commencement date, more than 5% of the value of funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 25% direct Black shareholding;

 

3.10.9 Within two years from the commencement date, more than 10% of the value of funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 25% direct Black shareholding;

 

3.10.10 From the first day of the third year and the last day of the fourth year from the commencement date, more than 20% of the value of funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 25% direct Black shareholding;

 

3.10.11 From the first day of the fifth year and the last day of the sixth year from the commencement date, more than 30% of the value of the funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 25% direct Black shareholding;

 

3.10.12 From the first of the seventh year and the last day of the eight year from the commencement date, more than 40% of the value of the funds invested by the Private Equity Fund must at all times be invested in the enterprises that have at least 25% direct Black shareholding;

 

3.10.13 From the first day of the ninth year and beyond from the commencement date, at least 51 % of the value of the funds invested by the Private equity Fund must at all times be invested in enterprises that have at least 25% direct Black shareholding;

 

3.10.14 It should be noted that the measurement of at least 51 % of the value of funds invested by any Private Equity Fund that must be invested in enterprises with at least 25% direct Black shareholding is to be measured with reference to the cost of the investment made by the Private Equity Fund;

 

3.10.15 In the case of Private Equity Funds that were fully invested prior to 11 October 2014, investments by the fund managers will be considered as being made by Black people if the Private Equity Fund Management entities meet the following criteria:

 

3.10.15.1 At least 51 % of any of the Private Equity Fund Manager's Exercisable Voting Rights associated with the Equity Instruments through which the Private Equity Fund holds rights of ownership in a Measured Entity, must be held by Black people;

 

3.10.15.2 At least 51 % of the profits accruing to the Private Equity Fund Manager after realizing any investment made by it, must by written agreement, accrue to Black people; and

 

3.10.15.3 Private Equity Fund Manager must be a B-BBEE owned company.