The private equity (PE) industry, which has already failed to live up to the returns expectations of its investors, has pleaded with regulators not to put additional pressure on it through new and more stringent rules.
Earlier this month, market regulator Securities and Exchange Board of India (Sebi) introduced guidelines to regulate all alternate investment funds (AIFs), including private equity funds. According to the new regulations, AIFs will not be permitted to invest more than 25 per cent of investible funds in one investee company and not be able to invest in associate companies. AIFs shall also provide, on an annual basis, investors with financial information of portfolio companies as well as material risks and how these are managed. Sebi has also permitted the number of investors in one fund at 1,000 and the minimum investment figure per individual at Rs 1 crore.
“Currently, more than 90 per cent of the funds’ pool money comes from outside India and it never comes under the purview of the Indian regulators. If the regulators want to clip the wings of those who pool money in India, then they will also opt to go abroad to pool in the capital,” said a managing partner of a $250-million India-focused fund, on condition of anonymity.
India has witnessed $50–billion worth PE investments in the last 10 years, which works out to about 40 per cent of total FDI inflows to India. Most PE executives, who spoke on the sidelines of the conference of Indian Venture Capital Association (IVCA) raised their concerns at these efforts by the government to bring the PE/VC firms under Securities and Exchanges Board of India (Sebi) regulations.Sumir Chadha, managing director, WestBridge and chairman, IVCA said the industry wanted a stable and clear regulation. “The investors are totally confused over the current situation in India and may opt for other Asian markets to pump in their money,” he said.
In response, the regulator seemed nonplussed.“We are working on the regulations. Soon, will come out with rules,” said Prashant Saran, whole time member at Sebi.
However, limited partners or investors behind the funds believe this lack of clarity will have a negative impact towards their total fund allocation towards India.
“Government’s move to regulate the industry is laudable. We welcome the regulation that streamlines industry growth. But we oppose the confusions, which will be detrimental to future growth,” said Anubha Shrivastava, managing director, Asia, CDC Group, a UK-based fund-of-funds.Apart from the negative feeling brought by the recent regulations, India is slowly moving out of the radar of investors, who are preferring to invest in other Asian markets like China and Taiwan.
“Indian funds have delivered single-digit absolute returns, so far, over the past decade. This despite faster economic growth in the country. During the period of 2004 to 2009, India delivered zero returns, while China gave a net return of 20 per cent on our investments,” she said and added, “there is a strong negative sentiment towards India and we are facing the regulatory uncertainty on top of all these.”
