Sebi seeks 'commitment' from fund managers that AIFs won't be misused
capital market regulator would give private equity (PE) and venture capital (VC) funds some latitude only after they commit that the funds would not be misused to sidestep other financial sector regulations. The Securities & Exchange Board of India (Sebi) has come across dozens of cases, running to thousands of crores, where alternative investment funds (AIFs) — the technical term for PE/VC funds — acted as tools to evergreen sticky loans, circumvent foreign exchange laws, and bankruptcy code.
«Don't tell me the fund manager didn't know what they were doing.
There's a feeling that regulators are too intrusive but we have certain concerns. Many of these breaches are not a violation of the letter of the law but are against the spirit of the law,» said Ananth Narayan G, Sebi wholetime-member addressing the fund industry here on Wednesday.
In curbing such misuse of the AIFs, a framework is being explored where fund managers give a specific commitment. Such a general obligation would be converted into specific standards so that fund managers know what needs to be done.
«I personally feel that the regulator would relook at some of restrictions once these conditions are fulfilled,» said the Sebi official in the course of an interaction which was organised by the industry lobby Indian Venture and Alternate Capital Association (IVCA).
Some of the transactions involving bypassing regulations are: a non-resident who is unable to invest in a company due to restrictions on foreign holdings routing his money through an AIF; or a disgraced promoter trying to indirectly claw its way back into the company by using AIF to.make the investment.
According to industry circles, some of the funds were also used by promoters or other
