The Alternative Investment Fund (AIF) regulations, approved by the Securities and Exchange Board of India (Sebi) on Monday, are being seen as an attempt to ensure better coordination between investors and the regulator.
Sebi has sought to bring under its purview unregulated funds and, at the same time, ensure systemic stability. In 2011, Sebi had put up a concept paper, along with the draft AIF regulations, inviting proposals from the industry.
Darius Pandole, partner, New Silk Route Advisors, said most of the industry?s representations have been taken care of. The biggest breather is the doing away with a clause on compulsory registration of a fund under any of the nine categories: Venture capital funds, PIPE funds, PE funds, debt funds, infrastructure funds, real estate funds, SME funds, social venture funds and strategy funds. The industry was of the view that this clause would further dampen the investment climate.
Pandole said the VC/PE industry depends on a mix of diverse strategies ? investing across different sectors, stages, industries, etc ? to ensure risk diversification. ?It’s by adopting such a portfolio approach that VC/PE funds attempt to provide higher risk-adjusted returns. It should be the prerogative of fund investors to devise strategies for the funds they manage, and to have the flexibility to change strategies based on changes in market conditions”.
The new norms have placed all funds under three categories to be governed separately in terms of tax incentives, investment horizon and other norms. Pandole said this would streamline AIFs. Also, the regulation spells a cut in GP/sponsor contribution from 5% of the total corpus to 2.5% or R5 crore, whichever is lower, making it easier for fund managers to float new funds. On Sebi not allowing AIFs to accept investment below R1 crore from an investor, Gopal Srinivasan, MD, TVS Capital, said: ?It’s a positive move. This will allow HNIs to participate in the market through sophisticated vehicles.?
Some industry veterans, however, questioned the rationale behind regulating the sector. Rahul Bhasin, managing partner, Baring Private Equity, said: “AIF regulations suggest an attempt to regulate capital allocation decisions and choice of instruments for investors. This will increase bureaucracy, without serving any economic purpose.?