Sovereign wealth funds cheer FPI framework; double assets in 10 months

Written by Jash Kriplani | Mumbai | Updated: Sep 19 2014, 10:03am hrs
SebiRecent regulatory changes introduced by Sebi with regards to foreign investors seem to have gone down well with sovereign wealth funds. (Reuters)
Recent regulatory changes introduced by the Securities and Exchange Board of India (Sebi) with regards to foreign investors seem to have gone down well with sovereign wealth funds (SWFs), who have more than doubled their equity assets in the last 10-12 months.

Just a couple of months after Sebi issued the draft regulations for foreign portfolio investor (FPI) regime, SWFs assets under custody (AUC) surged to their highest ever at $18.07 billion in December, 2013. Since then, SWFs have further raised their equity holdings, with AUCs surging past $24 billion 150% higher than the levels seen just before the draft in September 2013.

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Experts say the new regulatory framework has made it easier for SWFs to access Indian markets. The increased interest from SWFs in India is also aligned well with the recent changes ushered in by Sebi during the roll-out of the new FPI regime. The new regulations have provided relaxed norms for SWFs, foreign central banks, multilateral agencies, etc, in the form of an exclusive Category-1 for such investors, said Ranjan Bhattacharya, head, custody and clearing, India, HSBC Securities Services. HSBC was core member of the Chandrashekar Committee that made recommendations for the new regulatory framework.

Experts say under the FPI regime, the Category I investors, which include SWFs, are the biggest beneficiaries as they need the least amount of documentation and enjoy a relaxed a fee structure. Category I FPIs are exempt from paying registration fees, while their counterparts in Category II and Category III have to shell out $3,000 and $300, respectively, under the new framework.

SWFs asset managers would earlier need double-tier registration. An asset manager would need an FII licence and the fund would need a sub-account licence. Under the new regulations, if the fund is regulated, it can register as an FPI. There is no need for a separate registration of the asset manager. SWFs are typically structured with multiple asset managers having different investment strategies and the Indian regulatory framework is conducive for such models to be registered as FPIs in the market, Bhattacharya added. Market observers say SWFs have only been testing the waters so far and could further raise their equity assets. The rally in markets has also contributed to the rise in value of assets held by SWFs.