Sebi WTM Ananth Narayan notes AIFs invest 65% of committed funds

29 Feb 2024 CW Team

Ananth Narayan, a whole-time member (WTM) of the Securities and Exchange Board of India (Sebi), stated that there is a discrepancy in the actual investments compared to the commitments raised by alternative investment funds (AIFs), which have surged to around 10.84 trillion. He mentioned that, for some unknown reason, the actual investments for funds that have closed since 2012 appear to be only 60?65 per cent of the commitments, weighted by value. Narayan expressed the desire to further explore this phenomenon with the industry to understand the reasons behind it or to confirm if the data interpretation is accurate.

Narayan added that only 7 per cent of these actual investments have been directed towards startups. As of December 2023, the AIF industry boasted over 140,000 investors, with investments reaching approximately 4 trillion.

Addressing industry executives at a conclave organised by the Indian Private Equity and Venture Capital Association, Narayan raised concerns about valuations, noting instances where they remained 'stale' for an extended period or experienced sharp drops as the fund approached maturity.

The Sebi official revealed plans to expedite the approval process for AIF applications, aiming to reduce the time to one month. He mentioned that, as of now, no applications have been pending for more than two months, whereas there were over 55 applications pending in December 2022.

Emphasizing the need to prevent the evergreening of loans and the circumvention of regulations through AIFs, Narayan stated that the standards forum has drafted dos and don'ts for AIF managers and funds. Sebi is also working on defining the specifics of what constitutes circumvention, along with a code of conduct.

According to sources, the AIF industry had approached the Ministry of Finance, seeking relaxation on the directive issued by the Reserve Bank of India that restricts investments in funds with debtor links.

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