SEBI To Alter Rules On Alternative Investment Funds, Narayana Murthy To Head Seven Member Panel

In a bid to to match its pace with the rapidly evolving startup ecosystem in India, the capital market regulator, Securities and Exchange Board of India (SEBI) is considering to make changes in the rules on alternative investment funds (AIFs).

For this, the market regulator is planning to create a seven member panel committee led by Infosys founder NR Narayana Murthy to create an environment in which enterprises can raise private capital efficiently.

The other members are assumed to be Ajay Piramal, chairman of the Piramal Group and Renuka Ramnath, founder of Multiples Alternate Asset Management. Besides, executives belonging to KKR and Malabar Investments are also likely to be part of the committee.

Prior to this, Murthy has also headed the SEBI committee on corporate governance. Most of his recommendations became mandatory for listed companies.

The move comes at a time when SEBI had already announced its plans to  relax norms for the listing of startups in India. If the industry analysts are to be believed then India’s internet businesses are on the way to touch $300 Bn market value by the end of this decade.

The two regulatory officials having direct knowledge of the plans said, “SEBI has planned this move basis the availability of varied investors in India, to fuel India’s entrepreneurial economy.” One of them commented, “We are forming a standing committee on alternative investment funds for recommending measures for funding startups, taxation-related issues, among others.”

The alternative investment funds (AIFs), which is expected to be overhauled will include private equity, hedge funds and venture capitals. These funds will buy into private companies, restructure them and then liquidate their positions by selling to other firms or via stock offering. Presently AIFs have invested more than $100 Bn in scores of Indian companies over the last decade or more.

Commenting on the formation of committee by saying, J M Trivedi, South Asia head of Actis, one of the oldest foreign private equity players in India said, “A standing committee to look at issues concerning the industry will go a long way toward ensuring continued flow of growth capital into the country. Private equity industry is one of the largest sources of foreign direct investment in the country and has made tremendous contribution to economic growth over the last decade.”

SEBI has also planned segregated advisory committees covering different segments of the capital markets. The markets will be alienated into primary market, secondary market, mutual funds and corporate bonds which have emerged as a dominant force in India.

Archana Hingorani, CEO, IL&FS Investment Managers said, “A standing committee would look at all sector-related issues involving taxation and foreign investment regulations. This will facilitate a regular forum to address AIF sector issues as currently there are multiple agencies involved.”

Earlier in 2012, SEBI had issued an umbrella regulatory framework to cover all private pools of capital as it felt there was a need to recognise AIFs as a distinct asset class apart from promoters, creditors and public investors. It  had then repealed the 1996 rules for venture capital funds after it found that all types of funds used this avenue to invest across companies. This defeated the original purpose of the venture capital rules that were aimed at promoting early stage firms.