Indian insurers win approval to invest in domestic PE, debt funds

Liberalization started in 2011 when insurers' scope for participating in venture funds was expanded beyond infrastructure to include SME-focused vehicles. The recent reforms broaden exposure to the asset class still further.

India's Insurance Regulatory and Development Authority (IRDA) noted in a statement that restrictions still apply to investment in foreign-domiciled funds as well as any vehicles that are not Category I or II AIFs, or fall outside the AIF regime entirely.

Category I AIFs include vehicles that have a positive spillover effect on the economy and might qualify for certain incentives, such as venture capital funds, social venture funds and infrastructure funds. Category II includes vehicles that don't qualify for incentives, such as private equity funds and debt funds. Category III is for vehicles that embrace high risk or complex trading strategies, such as hedge funds.

The AIF regime was introduced by the Securities and Exchange Board of India (SEBI) to replace the venture capital funds (VCF) system. The VCF system was seen as unwieldy because classification requirements are so broad and unsafe because there is no mandatory registration.

According to IRDA, a life insurer's overall exposure to private equity - venture fund interests plus AIFs - must not exceed 3% of funds under management. General insurers are capped at 5% of total investment assets.

In terms of exposure to individual funds, both life and general insurers are prevented from accounting for more than 10% of a fund's total corpus or committing more than 20% of their overall allocation to the asset class, whichever is lower. For infrastructure vehicles, they can invest sums up to 20% of total fund size.

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• Topics
• LPs
• North Asia
• India
• LPs
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