Funds in a fix over new rules on treatment of big investors
equity (PE) and venture capital (VC) funds are in a quandary over the new rules that forbid them from offering lower fees and extra rights to large investors.
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While giving preferential treatments to attract big money is common among funds in the international markets, the practice runs counter to the recent regulations that have not only questioned the way fund managers run their business function but have also raised practical challenges.
Last week, a committee constituted by the Securities and Exchange Board of India (Sebi) to improve the ease of doing business for alternative investment funds (AIFs), urged the regulator to resolve the issues faced by the funds.
The new regulations, which came into force towards end-2024, require AIFs (the regulatory parlance for pooled vehicles like PE and VC funds) to maintain 'pro-rata' and 'pari-passu rights' for investors. In other words, not only should investors be on an equal footing-where all have the same rights-their shares of the whole investment should be equal to their respective contributions.
However, fund managers say that following the Sebi rules to the letter may not be possible under the present set-up. Against this backdrop, senior members of the AIF industry and domain experts believe that the regulations must be reviewed
