Alternative fund registrations short of Sebi estimates

Poor fund-raising environment plays spoilsport

The number of alternative investment funds or AIFs lining up for registration with the regulator were far fewer than what the Securities and Exchange Board of India (Sebi) had expected at the beginning of the year, largely due to of a poor investment environment, said experts.

Nehal D Sampat, associate director, tax and regulatory services, at Pricewat-erhouseCoopers, said investor sentiment during the year had not been conducive to raising capital, which might have had an impact on the number of registrations.

“The fund-raising environment has been challenging. We might see an uptick as the markets improve and investors are more ready to commit fresh capital,” he said.

LOSING LUSTRE

• Sebi had budgeted for Rs 7.2 crore from AIF registrations, expected 550 applications
• Political uncertainty, economic woes hit sentiment
• Fund-raising affected, registrations fall
• Number of registered AIFs is 77, as of September
• Sebi revises fee estimate downward to Rs 4.5 crore

Yogesh Chande, consultant, Economic Laws Practice, agreed the lacklustre environment probably hit registrations. “The fund-raising environment has not been very good with the uncertain political environment and adverse economic news,” he said.

The number has fallen short by approximately 30 per cent, suggest revised budget estimates made public as part of the regulator’s December board meeting agenda.

It had expected to collect about Rs 7 crore through registration fees when it prepared its budget at the beginning of the financial year. This has since been lowered to around Rs 4 crore.

“The number of application for registration of Alternative Investment Fund and Investment Advisors has not been as per the budgeted expectation…resulting into downward revision of budgeted amount from Rs 7.20 crore to Rs 4.50 crore,” said the budget document.  

There have only been 77 funds registered under the AIF regulations, as of September 30, Sebi data shows. It had budgeted for 520 applications through the year.

The regulator’s AIF regulations cover funds, including private equity players, venture capital investors and even hedge funds. The regulations sought to rationalise the rules governing such funds and were issued in 2012. Meanwhile, even as domestic fund raising has hit a rough patch, foreign funds aren’t easy to come by.  An Ernst & Young report  titled ‘Private equity: breaking borders’ had said foreign fund raising norms could be made easier for AIFs.

“Foreign investment in Sebi-registered AIFs (and in feeder fund vehicles constituted in India to invest in AIFs) should be allowed under the automatic approval route irrespective of the legal constitution of AIF ie., whether the AIF is constituted as a trust, limited liability partnership, company or other body corporate,” said the report issued in June 2013.

Currently, any foreign investment requires approval from the Foreign Investment Promotion Board.

Simpler tax payment and certainty in tax laws would also help attract investment, it had said.