CII calls for alterations to SEBI's proposed PE regulations

Responding to the Securities and Exchange Board of India's (SEBI) proposed Alternate Investment Funds (AIFs) regulation, the CII also suggests that all AIFs should be permitted to invest up to a specified percentage of the fund in listed securities, with the flexibility to make primary as well as secondary investments, The Hindu Business Line reported.

SEBI's proposed regulations are intended to replace the current venture capital funds (VCF) system. The VCF approach is seen as insufficient because the classification requirements are so broad, but some industry participants argue that SEBI has overcompensated, becoming too stringent in what certain types of fund can and cannot do.

For example, VCFs must have at least two-thirds of their capital invested in unlisted equity, with no more than one-third allocated to unlisted debt instruments of portfolio companies and preferential equity shares in listed firms. PIPE funds face a similar cap on their exposure to debt instruments, but are obliged to commit at least two-thirds of their capital to publicly listed equities.

Private equity funds would be required to invest at least 50% of capital in unlisted companies and no more than 50% in companies that have made listing proposals.

The fund sponsor must also contribute at least 5% of the capital, another condition that the CII disputes. It says that the minimum sponsor of fund manager contribution should be reduced to 1-2% or completely dropped in line with international practices. In addition, the CII argues that the regulations should comply with global standards by imposing no restrictions on fees charged by fund managers.

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• Topics
• South Asia
• Regulation
• SEBI