Sebi asks custodians of AIFs for investment info

Mumbai: In what would bring out investment limit breaches and conflicted deals by larger private equity (PE), venture capital (VC) and domestic hedge funds, the capital markets regulator has called for a slew of details regarding their investments.

The Securities & Exchange Board of India (Sebi) on Monday asked the custodians of these funds to state the names of investee companies, quantum of each investment, investable surplus on the day of the investment, and whether the investee company is an 'associate' of the fund, among other things.

Sebi is believed to be keeping a close watch on alternative investment funds (AIFs) - the regulatory term for PE and VC houses - as they grow rapidly. AIFs have received close to ₹2 lakh crore of commitments from investors in 2022-23 and ₹1.9 lakh crore in the previous year.


Category I and II AIFs - VC, infrastructure, real estate, PE and stressed asset funds - can invest up to 25% of their investable funds in a single entity.

Monitoring Associate Investments
Investable funds refers to the scheme corpus net of expenditure for administration and management.

The corresponding limit is 10% for Category III AIFs, which can leverage and take exposure to derivatives.

"Monitoring of investable funds and the resultant investment limits has been a key compliance issue for AIFs," said Tejesh Chitlangi, senior partner at law firm IC Universal Legal. "Many a times, there are breaches that are inadvertent, due to the lack of uniform practice and regulatory clarity on how funds should calculate their fees and expenses during the tenure, and the corresponding investable funds calculation, which is the basis for AIFs to calculate underlying investment limits."

There are several other monitoring issues pertaining to associate investments, fund of fund and overseas investments, where there are associated regulatory compliances required of AIFs, said Chitlangi. He added that the regulator may be keen to understand if there have been any potential red-flags there.

A fund has to take approval of 75% of the investors for putting money in an 'associate entity' where there is a conflict of interest. An associate enterprise is a company or a limited liability partnership in which a director/trustee/partner/sponsor/manager of the AIF or a director/partner of the manager/sponsor holds - either individually or collectively - more than 15% of the paid-up equity or partnership interest.

Other details sought by Sebi from the fund custodians are type of investee company and security, extent of offshore investments, net asset value of the scheme as on the date of investment, and the percentage of investment in equity vis-a-vis total paid up capital of the investee.