Alternative investment fund norms will not cover funds raised outside India.
In a big relief for big private equity funds investing in India, the Securities and Exchange Board of India (Sebi) has said the proposed regulatory framework for Alternative Investment Funds will not cover those raising money from investors abroad.
“There was strong criticism; a lot of it was misplaced. e have clarified that if funds are raising money outside, we are not looking at regulating them. But if these funds are raising money inside, then we need to put in place the customer protection framework,” Sebi chairman U K Sinha said here on Tuesday.
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He said the rules should take effect in the next “two months”. The announcement comes as a breather to most of the big-bracket PE firms, which had faced registration under Sebi rules and compliance norms. The draft regulations did not make any distinction between local or foreign PE funds.
“All Alternative Investment Funds in the securities market, irrespective of their legal domicile, which collects its fund from institutional or high net worth investors in India or the manager of such fund who manages the fund for investments in India, shall be bound by these regulations and be subject to registration and oversight of the Board,” the draft paper said.
A high net worth investor, for this purpose, was defined as “individuals or corporate or any other legal entity located in India or overseas who invests in AIF for a value of not less than Rs 1 crore.” The draft paper had also created separate segments of funds based on their investment objective, such as PIPE fund, debt fund, real estate fund, infrastructure fund, SME fund and social venture fund. PE players found such segmentation restrictive, as most funds invest across sectors and use different instruments such as equity shares, preference shares or debentures.
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Sinha said the new regulations would not have any mandates for funds to stick to a particular sector, unless these were availing a policy concession for a particular sector. “If you are availing such concession, then you need to remain within the mandate. But if you are not availing any concession, then you are free (to invest in any sector),” he added. He said the proposed financial advisor regulations would also go through soon. “Just because something is complicated, we will not stay away. Sebi will take initiative. We will move ahead.”
Sinha was also critical of stock exchanges’ complaints redressal mechanism. “The arbitration order always goes in favour of intermediaries,” he said. Sebi has received a large number of inputs, including from high net worth individuals. “They feel frustrated. A single disgruntled investor can affect the business of another 80-100 people. How do we generate trust?” he asked.
He added that the alerts generated from their improved surveillance system are not “very comforting.” Companies and intermediaries must do much more to focus on and strengthen the “compliance culture”. Sebi is also reviewing the framework of algorithmic trading, co-location and high frequency trading. “We are looking at the entire market infrastructure. Intermediaries should look into your risk management system. If proper care is not exercised, we are not going to like it,” Sinha warned.