 "<b>Street Food:</b> The fast rise of an alternative kingdom")
Foreign portfolio investors (FPIs) are market royalty. Their moves are closely watched and analysed threadbare. Their domestic cousins, mutual funds, for which disclosure requirements are much more, are also subject to significant analysis.
In the past three years, a middle kingdom has been growing quietly — the domain of alternative investment funds (AIF), which can be interpreted as covering almost everything that doesn’t come under the first two categories, including private equity, venture capital and hedge funds.
As of June 30, 158 AIFs were registered with the Securities and Exchange Board of India (Sebi). The regulator recognises three such categories: the first is venture capital funds and early-stage funds. Private equity funds come under category-II, and hedge funds and other high-risk vehicles are in the third category.
Category-I, divided into infrastructure, social ventures, venture capital and SME (small and medium enterprises) funds, is next, with a commitment of Rs 8,900 crore. But, just about a third of this commitment has been raised, of which about Rs 1,900 crore has found its way to investee companies. Infrastructure accounted for most of the investments.
SME funds, which have raised about Rs 104 crore, are yet to make any investment.
Of Rs 2,123 crore committed to category-III, most has been raised and about Rs 1,600 crore already invested.
The growth numbers are impressive, a reflection of a buoyant private equity market. Between June 2013 and June 2015, the overall commitment grew 10-fold, while investments made recorded a 20-fold jump. In the past year alone, total investment across categories has doubled from about Rs 4,400 crore. The June quarter alone accounted for a significant 37 per cent of the past year’s gains.
This growth is despite the funds fighting tax uncertainties and domicile issues. At a recent private equity event, the junior finance minister, a former fund man, and the revenue secretary assured the tax issues of these funds were being addressed quickly.
Cumulatively, about Rs 25,000 crore has been committed towards these funds. Half of this has been raised already, of which Rs 9,100 crore has been invested.
While it is encouraging to see a new category recorded good growth, albeit on a low base, the cumulative investment of Rs 9,094 crore through the past three years sounds humble compared to the overall PE, venture capital and hedge fund activity and deals being reported in the country.
According to a Grant Thornton report, 462 private equity deals, worth $7.1 billion (about Rs 46,000 crore), were carried out in the first six months of this year. Bloomberg data put the worth of such deals in the first half of this year at $12.7 billion (Rs 82,550 crore).
This gives the impression that most of the private equity and venture capital activity, particularly in the start-up segment, are outside of this Sebi-regulated AIF universe. It is unlikely that the new start-up regulations, in their current shape, will help change things drastically.
What, then, is the point of AIF regulation, if 90 per cent of deals and funds are left out? Infosys founder N R Narayana Murthy had famously said everyone other than God should come with data. Sebi would hope the committee under him studies such interesting data and comes up with useful suggestions.
In the past three years, a middle kingdom has been growing quietly — the domain of alternative investment funds (AIF), which can be interpreted as covering almost everything that doesn’t come under the first two categories, including private equity, venture capital and hedge funds.
As of June 30, 158 AIFs were registered with the Securities and Exchange Board of India (Sebi). The regulator recognises three such categories: the first is venture capital funds and early-stage funds. Private equity funds come under category-II, and hedge funds and other high-risk vehicles are in the third category.
More From This Section
Of these, category-II is the largest, with a commitment of Rs 13,908 crore, of which Rs 7,591 crore has already been raised and Rs 5,600 invested.
Category-I, divided into infrastructure, social ventures, venture capital and SME (small and medium enterprises) funds, is next, with a commitment of Rs 8,900 crore. But, just about a third of this commitment has been raised, of which about Rs 1,900 crore has found its way to investee companies. Infrastructure accounted for most of the investments.
SME funds, which have raised about Rs 104 crore, are yet to make any investment.
Of Rs 2,123 crore committed to category-III, most has been raised and about Rs 1,600 crore already invested.
The growth numbers are impressive, a reflection of a buoyant private equity market. Between June 2013 and June 2015, the overall commitment grew 10-fold, while investments made recorded a 20-fold jump. In the past year alone, total investment across categories has doubled from about Rs 4,400 crore. The June quarter alone accounted for a significant 37 per cent of the past year’s gains.
This growth is despite the funds fighting tax uncertainties and domicile issues. At a recent private equity event, the junior finance minister, a former fund man, and the revenue secretary assured the tax issues of these funds were being addressed quickly.
Cumulatively, about Rs 25,000 crore has been committed towards these funds. Half of this has been raised already, of which Rs 9,100 crore has been invested.
While it is encouraging to see a new category recorded good growth, albeit on a low base, the cumulative investment of Rs 9,094 crore through the past three years sounds humble compared to the overall PE, venture capital and hedge fund activity and deals being reported in the country.
According to a Grant Thornton report, 462 private equity deals, worth $7.1 billion (about Rs 46,000 crore), were carried out in the first six months of this year. Bloomberg data put the worth of such deals in the first half of this year at $12.7 billion (Rs 82,550 crore).
This gives the impression that most of the private equity and venture capital activity, particularly in the start-up segment, are outside of this Sebi-regulated AIF universe. It is unlikely that the new start-up regulations, in their current shape, will help change things drastically.
What, then, is the point of AIF regulation, if 90 per cent of deals and funds are left out? Infosys founder N R Narayana Murthy had famously said everyone other than God should come with data. Sebi would hope the committee under him studies such interesting data and comes up with useful suggestions.