Informist, Tuesday, Feb 27, 2024

--SEBI Narayan: Alternative invest fund must not evade fincl sector norm

--CONTEXT: SEBI Whole Time Member Narayan at venture capital conclave

--SEBI Narayan: Prescriptive norms needed for alternate invest funds

--SEBI Narayan: Alternative fund norms cannot just be principle based

MUMBAI – The Securities and Exchange Board of India today reiterated its concerns over the circumvention of financial sector norms by some alternative investment funds. Speaking at an IVC Association event today, Ananth Narayan G, a whole time member at SEBI, said that the incidences of circumvention the regulator has come across in its inspections are not one-off and represent an industry-wide problem.

"We want to ensure that our concerns are addressed by the alternative investment funds industry," Narayan said. He also said that the market regulator cannot limit the norms pertaining to alternative investment funds as principle based, but will break these down into prescriptive norms which it will specify from time to time.

Narayan said that due diligence by key managerial personnel in the alternative investment funds industry has to be thorough. Talking about the industry's qualms that SEBI has asked investment managers to give a declaration in writing that they will not allow their funds to be used to circumvent any financial sector norms, Narayan said that this may appear "scary" to fund managers but the problem of actual circumvention happening due to a lack of due diligence was more "scary" for the regulator.

Narayan said that if the key managerial personnel in an alternative investment funds does thorough due diligence, even an inadvertent circumvention will be viewed mildly by the regulator. However, if due diligence is lax or missing, even if there is no circumvention, SEBI will take a serious view of it, he said.

The whole time member said that as and when the market regulator tweaks the norms for alternative investment funds, it will specify in detail what it wants from the industry.  "There will be no ambiguity at all," said Narayan. The industry has been seeking clarity from SEBI with regard to the exact financial sector norms that were circumvented by some of the funds.

Narayan also expressed surprise at the low rate of conversion of commitments disclosed by alternative investment funds into actual investments. He said that data from 2012 showed that only 60-65% of commitment proposals disclosed by alternative investment funds resulted in actual investments. Another interesting data point that SEBI noticed was that only 7% of the actual investments had gone into startup companies, Narayan said.  End

Reported by Rajesh Gajra

Edited by Deepshikha Bhardwaj and Maheswaran Parameswaran

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