It was an easy day for Malini Sharma (name changed) who is an external advisor and investment committee member to private equity (PE) funds in India. But in the evening of October 19, a circular on the website of markets regulator Securities and Exchange Board of India (Sebi) brought in a series of amendments to the Alternative Investment Funds (AIF) Regulations of 2012. This is not unusual, but of late, Sebi is on a spree of issuing circulars on AIF guidelines, and tightening regulations around this largely independent sector, which is usually less-understood by the common folk.
Sharma, however, is not common folk. A PE investor for the last two decades, she sits on the boards of some of the largest homegrown funds in India. Yet, she is worried. To know why we have to first understand how Indian PE funds work.
PE and venture capital (VC) funds in India register themselves as AIFs and are governed by AIF regulations that came into effect in 2012 after Sebi repealed the Venture Capital Fund (VCF) regulation of 1996.
Fund managers have to raise a minimum of ₹1 crore from each investor and they cannot have more than 1,000 investors in each fund. Sebi has specified that fund managers, as part of their skin the game, have to invest 2.5 percent of the fund value or $1 million, whichever is lower. But Sebi has not specified the rules for internal fund structures or for penalising members in the fund.
Globally, PE and VC funds usually have very lean teams and they constitute an investment committee (IC), comprising the decision-makers of the fund, experienced professionals and marquee names from the industry. In most fund constructs, the IC has a final say in whether a fund manager should go ahead with the deal or not. Almost all homegrown Indian funds follow this structure.
The Sebi circular on October 19 stated, firstly, that the fund manager shall be responsible for investment decisions of AIFs. Usually, the investment manager is the name of the firm under which the fund is registered, and the firm is liable for any cases against them, and not individuals.
The second part of the Sebi circular, which has the likes of Sharma worried, is where it states that the members of the IC shall be equally (jointly and personally) responsible as the fund manager for investment decisions. This is the first time the Sebi has referred to the IC since 2012.
Sharma says, “Our job is predominantly to oversee if the deal that the fund manager has brought is a good deal or not on an economic and financial basis. But this circular says that we will be personally and severally responsible for everything that the fund does, apart from just investing. I would go bankrupt if I have to defend myself in the large funds that I serve, and it is a genuine concern for everyone in the ecosystem.”
Continue reading your story on the app
Continue reading your story in the magazine
Selfless Service For Minimum Pay
ASHA workers such as Vinimol and Indu in Kerala have been the foot soldiers in the fight against Covid-19, and yet not acknowledged enough
The Way We Shot (From Home)
With barriers to film production brought in by the pandemic, filmmakers came up with creative ways to tell and shoot stories
Lending A Helping Hand
Billionaires, CEOs, philanthropists and celebs went out of their way to help citizens deal with the pandemic
Will The Pandemic's Lessons Go Viral?
Besides scaling up the health workforce, infrastructure, equipment and management systems of primary, secondary and tertiary healthcare facilities need to be strengthened
Heroes Behind The Wheel
Ambulance drivers have transported those who succumbed to Covid-19, regardless of risk to their own lives
A Tailwind For Digital Transformation
Across sectors in India, the Covid-19 crisis pushed businesses to embrace technology at a rate they wouldn’t have thought possible otherwise
Friends on the Frontline
Cops and municipal workers ensured humanitarian help and essential supplies were readily available during the lockdown
Eye For Innovation
Five companies launched and modified products to address health care needs and simplify treatment during the pandemic.
Lessons From Lockdowns
Industry leaders from across sectors talk about what their learnings—professional and personal—have been through the Covid-19 pandemic
10 Big Questions For 2021
The Covid-19 crisis wreaked havoc on the economy. Will the New Year herald a much-needed recovery?
YOGA & PEACE
DEEPAK CHOPRA speaks with DAAJI about the role Yoga has to play in bringing about world peace. This is an excerpt from their conversation broadcast on International Day of Peace, September 21, 2020. That documentary is available at https://heartfulness.org/en/international-day-of-peace/.
Create the habit of meditation
CHIRAG KULKARNI, Co-Founder and CMO of Medly Pharmacies in the USA, speaks with RISHIKA SHARMA about creating a regular meditation practice, so as to make it a habit. He also shares how meditation has benefited both his personal and professional life.
SHIA'S PRIVATE TEMPLE OF DOOM!
Indiana Jones gig derailed by abuse scandal
"Food Raconteur” Ashok Nageshwaran wants to tell you a story.
THE MAKING OF A MODEL MINORITY
Indian Americans rarely stop to ask why our entrance into American society has been so rapid—or to consider what we have in common with other nonwhite Americans.
In 2017, DR. VANDANA SHIVA spoke with KIM HUGHES about the sacredness of the Earth, the work she has been doing to bring awareness and change in the field of sustainable agriculture, and the importance of understanding our interconnectedness with Nature, and how we can change the way we eat.
DIAMONDS - A Luxury Gem Steeped in Fact & Fable
The diamond is one fabled gemstone! For example, google “Hope Diamond” to see all the legends associated with just this one stone said to bring misfortune to its owners.
Brown Sugaa and Medusa
Brown Sugaa and Medusa
CHINA DEMANDS INDIA RESCIND APP BAN AMID BORDER TENSION
China on Wednesday demanded India rescind a ban on more Chinese mobile phone apps amid tension between Beijing and other governments over technology and security.