The markets regulator, Securities and Exchange Board of India (Sebi), on Thursday asked Franklin Templeton, which recently decided to wind up six of its schemes, to “focus on returning the money of investors as soon as possible”.
Sebi’s comment came a day after the fund house's global chief Jennifer Johnson blamed the regulator’s new rule around investments in unlisted debt for the winding-up decision.
Over Rs 25,000 crore ($3.3 billion) worth of investments belonging to 300,000 investors are currently stuck in the six debt schemes wound up by the fund house. It had made the surprise announcement on April 24, citing high redemption pressure and the illiquid debt market.
During an analysts call on Wednesday, Johnson, president and chief executive officer of Franklin Resources, had said: “Unfortunately, Sebi came out with new guidelines saying that any investments in unlisted instruments in funds can’t have more than 10 per cent in a fund, and you can’t trade them. So that orphaned about a third of our fund there.”
Last year, Sebi had directed debt MF schemes to not have more than 10 per cent exposure to unlisted papers. It further stated that outstanding exposure should be brought down in a phased manner.
In the context of Johnson’s comments, Sebi said: “It may be noted that in light of credit events since September 2018 which led to challenges in the corporate bond market, a need was felt to review the regulatory framework for MFs and take necessary steps to safeguard the interest of investors and maintain the orderliness and robustness of their investments.”
The regulator said the curbs around investments in unlisted debt was necessary for transparency. “It was observed that unlisted debt securities, particularly bespoke securities in which only a single investor invested, suffered from both forms of opaqueness: Opaqueness of structure and true nature of risk on the one hand, and lack of ongoing disclosure in respect of financials of the issuer on the other.”
The regulator said the decisions were taken after due consultation and deliberation with an 18-member expert panel. The regulator came down heavily on fund houses that continue to have high exposure in private debt.
“Despite the regulations being clear, some mutual fund schemes seem to have chosen to have high concentrations of high risk, unlisted, opaque, bespoke, and structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far,” it said.