AIFs push to flip the switch on regulatory static to ease fund flows

Operational noise disrupts capital flow; industry demands an inter-regulatory bridge

The alternative investment fund (AIF) industry has urged the market regulator to create an inter-regulatory platform where all stakeholders, including regulators such as the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (Irdai), can be onboarded to help address operational hurdles in domestic capital formation.

 

The Indian Venture and Alternate Capital Association (IVCA) made the request during a meeting with Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey last week, citing Sebi’s role as the principal overseer of the industry.

 

The platform would enable coordinated discussions among financial regulators, including the RBI, Irdai, and the Pension Fund Regulatory and Development Authority.

 

Sebi has begun consultations with industry players and regulated entities to explore regulatory easing. Key discussions with AIFs include revisiting outdated norms, shifting focus towards accredited investors, and updating certain rules to reflect global standards.

 

“For domestic capital formation, all stakeholders — including regulators such as the RBI, Irdai, and entities like banks and insurance companies — need to sync up. This can be led through an inter-regulatory platform where discussions are periodic. It will allow AIFs to voice their views if there are any synchronisation issues,” said Srini Sriniwasan, managing director, Kotak Alternate Asset Managers, and vice-chairperson, IVCA.

 

The RBI’s December 2023 restrictions on banks and financial institutions investing in AIFs with exposure to debtor firms had initially raised concerns, though the central bank later eased provisioning norms in March 2024.

 

Sriniwasan said some banks may still struggle to honour capital calls due to the earlier circular.

 

AIF industry executives believe such a platform could help resolve operational bottlenecks in domestic capital formation.

 

As of March, total AIF commitments stood at ₹13.5 trillion, with fundraises reaching ₹5.63 trillion. Real estate, information technology, and financial services remain the top investment sectors.

 

Another key discussion involves simplifying the registration process for accredited investors by leveraging public data infrastructure, such as tax and ownership records from depositories. Accredited investors, deemed to have higher risk appetites and market knowledge, are a priority for the industry.

 

With the evolving AIF landscape, IVCA is also working to overhaul older regulations. Sources indicate Sebi has formed a working group focused on improving the ease of doing business.

 

The industry has also proposed bringing domestic norms in line with international frameworks. Unlike India’s fund-specific regulations, global models primarily regulate AIF managers, which, executives say, eases systemic pressure.