RBI rule change leaves many AIFs in the lurch

livemint.com:

RBI)’s regulations, venture capital and private equity funds have halted new and follow-up investments, resulting in a backlog of deals, said fund managers and founders. The industry has approached the banking regulator, seeking clarification, they added. As part of the private equity and venture capital fundraising process, investors or limited partners (LPs) commit an amount to a fund, which is not immediately transferred.

The fund manager requests capital on a deal-by-deal basis, which is referred to as capital call or drawdown; then, fund managers issue partly paid units to these LPs. The Securities and Exchange Board of India (Sebi) has granted permission for alternative investment funds, or AIFs, to issue partly paid units when requested by investors and AIFs. However, two months ago, RBI modified Form INVI, which must be submitted by the investment funds (AIFs, real estate investment trusts (REITS) and infrastructure investment trusts (INVITS)) to RBI as soon as they receive a capital commitment from foreign investors.

This move was to the prevent filing of such partly paid units. “The change was not announced to the industry as a whole, and was discovered only when some AIFs tried filing Form INVI," a fund manager with $500 million-plus of assets under management (AUM), said, seeking anonymity. According to him, industry groups made representations to RBI on the issue, but are yet to get a response.