The Sebi exam that PE pros find hard to pass

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Subscribe to enjoy similar stories. India's private equity and venture capital fund sector is staring at an embarrassment with 60 out of 100 executives failing in an exam mandated by the stock market regulator. The exam, conducted by the National Institute of Securities Management (NISM), is mandatory for one executive per firm to secure or keep their registration.

Often, it is a principal-level investment manager who appears for the exam on behalf of the firm. Multiple fund managers, speaking on the condition of anonymity, explained the high failure rate and what they are doing to get around it, even as an industry body has taken up the matter with the regulator. “The problem is they have one exam for Cat-1, Cat-2 and Cat-3 funds, although rules governing each category are separate," a fund manager said.

Alternative fund managers register as Category-1 if they are running venture capital, impact or infrastructure funds. Cat-II funds are for private equity or private debt, while public markets funds fall under Cat-3. “It (the exam) is too Cat-3 heavy.

And the way they set the exam, it does not reflect the way the industry operates," a second fund manager added. The trouble began with the Securities and Exchange Board of India (Sebi) last year asking executives at alternative investment funds (AIFs)—which covers PE and VC firms—to pass an exam with multiple choice questions, since others offering similar services were already doing so. Initially, Sebi wanted every such executive to take the test, but this was relaxed to one executive per firm following requests from multiple fund managers.