Regulating Alternative Investment Funds

At its board meeting on April 2, 2012, SEBI has approved a proposal to frame a separate set of regulations governing alternative investment funds. This is with a view to regulate the fund industry more comprehensively. Currently, there are not only various routes available for investment funds to be structured, but there is ambiguity regarding the regulation of certain types of investment funds such as private equity. This effort by SEBI seeks to introduce greater clarity and certainty.
The objectives of the new regulations are “to extending the perimeter of regulation to unregulated funds, and ensuring systemic stability, increasing market efficiency [and] encouraging formation of new capital”. The regulations are expected to largely track a concept paper previously issued on this topic, as approved by SEBI.
SEBI’s proposal seeks to categorise various types of alternative investment funds according to their risk profile, and the extent to which they are likely to affect the macroeconomic environment in India. Aspects such as whether the fund is open-ended or close-ended and whether it is entitled to use leverage are treated as distinguishing factors.
While the comprehensive nature of the regulations would bring greater clarity to the market, its all-encompassing nature will bring several investment entities that were hitherto unregulated by SEBI. To that extent, this constitutes a sea-change, and when implemented it will require investors to acclimatize themselves to a novel regulatory regime. Of course, the details will be known only when the text of the regulations is issued by SEBI.

Market Infrastructure Institutions: At the same board meeting, SEBI also took decisions regarding the ownership and governance of institutions, such as stock exchanges, which have been generating a great amount of debate in the Indian context.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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