SUMMARY
Market regulator SEBI announces yet another bonanza for AIFs by enhancing the overseas investment limit from existing $750 Mn to $1500 Mn
All other requirements, terms and conditions shall remain unchanged, said SEBI
SEBI, earlier this month, had tweaked startups and VCUs definitions, allowing AIF I to invest in NBFCs
India’s securities and commodity market regulator The Securities and Exchange Board of India (SEBI) has brought yet another relief to the Alternative Investment Funds (AIFs) by doubling their overall limit for overseas investments.
In consultation with the Reserve Bank of India (RBI), the market regulator has now doubled the permitted limit to invest overseas from $750 Mn to $1500 Mn. All other requirements, terms and conditions shall remain unchanged, said SEBI in a circular.
Commenting on the development, Siddarth Pai, managing partner, 3one4 Capital and co-chair of Regulatory Affairs Committee at IVCA said that the AIF industry in India has averaged a CAGR of 491.42% from December 2012 to December 2020, reaching a cumulative size of 4.42 lakh Crore, growing from strength to strength since its inception in 2012. In a highly globalised world, asset diversification in terms of geographies adds a significant alpha to a fund manager’s performance. In view of this, SEBI allows Indian AIFs to invest up to 25% of their investable corpus (fund size minus expenses) overseas and created a $500 Mn allowance for overseas investments in 2015, with the condition that the overseas investments would need to have an Indian connection.
The SEBI had increased this limit from $500 Mn to $750m in 2018. But as the industry grew, the size of the previous allowance was becoming a bottleneck for Indian AIFs to invest overseas, with the allowance getting exhausted due to the sheer size of the industry and pace of investments. IVCA took cognizance of this and through its Regulatory Affairs Committee, wrote to SEBI to highlight this issue and requested for an increase in the overseas investment limit.
“We’re thrilled to see this doubling of the overseas investment allowance to $1.5 Bn, which will enable Indian AIFs to invest overseas and generate strong returns for their investors. This will allow greater Indian participation in global companies and will accelerate the growth of the Indian AIF industry overall,” said Pai.
This is in line with some of the long pending demands of AIFs. Earlier this month, SEBI had released the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2021, meeting some of the long-pending demands of VCs, startups and fund managers. From tweaking the definitions of venture capital undertakings and startups to introducing a new code of conduct for fund managers, the capital market regulator came up with a slew of measures to bring in more clarity, transparency and accountability in the startup investment culture, with the focus on alternative investment funds (AIFs) and their operations.
The second amendment will further impact Category I and II AIFs with SEBI relaxing certain restrictions on their investments and also putting fresh restrictions on AIFs regarding concentrated funding in startups. For instance, Category I AIFs are now allowed to invest in NBFCs. According to SEBI Regulations, Category I AIFs will now invest in investee companies, VCUs, special purpose vehicles (SPVs), limited liability partnerships or in units of other Category I AIFs operating in the same subcategory.
