Some PE, VC investors more equal than others? Sebi seeks to find out
private equity (PE) and venture capital (VC) investors more equal than others? The capital market regulator has asked several funds to reveal the names of investors who have been offered beneficial terms by the funds and have representation on the funds' investment committees.
Many PE and VCs — or, alternative investment funds (AIFs), the regulatory term for such pooled vehicles — have been told to spell out the details of these differential rights given to certain investors.
In a communique to many AIFs about a week ago, the Securities & Exchange Board of India (Sebi) asked fund managements to submit documents like 'side letters' and 'contribution agreements' that provide special rights to investors. The regulator may compare a side letter, which is an agreement between a fund house and some investors, providing rights and obligations which are outside the standard investment document, with the fund's private placement memorandum (PPM) — the disclosure document used for fund raising through private offering.
«A demat of AIF units, as Sebi wants, means a ISIN specific degree of homogeneity. However, side letters, which inherently provide differentiated rights — whether economic or governance-driven — for investors, represent the opposite end of the spectrum. Indeed, how Sebi navigates these differing objectives could potentially shape the future of the fundraising process for the AIF as a platform,» said Richie Sancheti, founder of the law firm Richie Sancheti Associates.
More than 1200 AIFs have raised close
