PE, VC funds form shadow panels amid rules delay
NEW DELHI, MUMBAI : Private equity (PE) and venture capital (VC) funds registered as alternative investment funds (AIFs) are forming shadow investment committees (IC) as formal appointments of foreign nationals in such panels have been barred, pending an opinion from the Reserve Bank of India (RBI) about the validity of such hiring, two people familiar with the development said. In October 2020, the Securities and Exchange Board of India (Sebi), India’s markets regulator, wrote to RBI seeking its view on whether having non-residents on the IC would make the AIF foreign-controlled. In the meantime, Sebi prohibited AIFs from hiring foreign nationals on their ICs.
However, the central bank has yet to give its opinion on the matter, and the prohibition may extend until the opinion comes, the people said. However, it is a common practice among AIFs, especially the funds that specialize in investing in the technology sector, to hire people with global exposure on their ICs. Due to the Sebi prohibition, these non-residents cannot be officially appointed to ICs.
Hence, the funds are instead hiring them in an advisory position, technically out of the ambit of IC rules. Instead of making an investment decision, these non-residents provide their opinion to the fund managers who take the final call on investment. Emails sent to spokespeople for Sebi and RBI remained unanswered.
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