Sebi spares AIFs $20 million FDI floor
Local business houses and financial services groups will find it easier to rope in foreign partners to carry out fund management activities in India with the capital market regulator, Sebi, clearing the fog caused by a new rule.
The Securities and Exchange Board of India has spelt out that sponsors and managers of alternative investment funds, or AIFs, are covered by its regulations — a stand that will spare the sponsors and managers of these funds from a recent government rule that foreign direct investment (FDI) in unregulated financial services cannot be less than $20 million.
AIFs are money pooling vehicles for venture capital funds, private equity houses, real estate and hedge funds, besides others. Sebi’s AIF regulations issued in 2012 provide a framework for registering funds but not sponsors/managers — which may be entities that are not currently regulated by any of the financial services regulators. However, it made little difference.
This changed with a mid-April notification, which made things difficult for companies, institutions and fund managers planning to tie-up with global partners for AIFs. According to the finance ministry release, minimum FDI for an ‘unregulated fund-based’ service — asset or portfolio management — was $20 million while the floor FDI for an ‘unregulated non-fund based service’ (such as investment advisor, forex broking etc.) was $2 million.