PE, VC Industry Body Asks Govt To Allow Perpetual Funds & Blended Finance Models

SUMMARY

The industry body presented a list of demands with regard to the tax treatment of specific features of AIFs, ESOPs and FoFs

Allowing perpetual funds and blended financing will help long-term investors to have consistent capital flows, IVCA said

The presentation comes shortly after the finance ministry formulated an expert committee to help increase the inflow of startup investments

Representatives of the Indian Venture and Alternate Capital Association (IVCA) have asked finance minister Nirmala Sitharaman to allow perpetual funds to operate in line with global standards. The move will help long-term investors such as family offices, corporates and insurance companies to have consistent capital flows, the representatives said.

For the uninitiated, in a perpetual vehicle, funds do not come with the drawbacks of PE and VC funds like capital calls, exit deadlines, fixed fund cycles and more. Thus, these funds get a longer pipeline to back companies.

The PE and VC industry body also presented a list of demands with regard to the tax treatment of specific features of alternative investment funds (AIFs), employee stock option plans (ESOPs) and Fund of Funds (FoFs).

The industry body, which represents a host of private equity (PE) funds and venture capitalists (VCs), has asked to announce taxation measures in the Union Budget 2023. It further requested the finance ministry to allow blended finance models to operate with multiple FoFs.

“There is a need to identify the gatekeepers for operationalising FoFs and by addressing some of the limitations in pooling of funds such as the PFRDA, EPFO and others,” Mint said in a report, quoting the presentation made by IVCA representatives.

The IVCA representative also told the finance ministry that the current taxation regime is disincentivising capital backing. Thus, IVCA has proposed having taxation parity with listed stocks and securities rather than a uniform 15% tax on PE and VCs.

Inc42 could not independently verify the contents of the presentation. The story will be updated with additional information.

Recently, the finance ministry formulated an expert committee that would constitute a team to suggest appropriate measures to increase the inflow of venture capital and private equity investments into the country.

The announcement of the expert panel was a run-up to long-standing demands of the the PE and VC industry body for more reforms, especially taxation disparity, startup IPOs, valuation woes, co-investment norms, and reforms in ESOPs, among others.