Sebi nudges AIFs to make more disclosures for better transparency

Opaque India-focused funds, often preferred by wealthy investors, will soon have to disclose their performance numbers and other information to the capital market regulator.

Securities and Exchange Board of India (Sebi) is pushing alternative investment funds (AIFs) — a regulatory parlance for privately pooled vehicles such as venture capital (VC), private equity (PE), and real estate funds — to share data to improve transparency and help investors compare returns.

The net cumulative fund raised by alternate investment funds in the past six years till March 2019 is Rs 1.3 lakh crore while total commitments from local and global investors is over Rs 2.8 lakh crore. There are foreign portfolio managers who have preferred to take the AIF route to invest in India.


“Since investors in AIF are supposed to be better-informed and the minimum ticket size for investment is Rs 1 crore, the regulator had kept a distance. But the AIF industry is now big and there are concerns about misselling and risks associated with investments in complex products, including securities debts, depending on the fund mandate,” a senior industry person familiar with the subject told ET.

Senior Sebi officials have had several meetings with the venture capital industry body, advisors, and a leading credit rating agency to discuss the disclosure format.

According to persons who attended these meetings, AIFs will be required to disclose information on historical data, net asset value, other performance numbers and fees. Very little data is shared by AIFs in the current quarterly reporting system. While AIFs would not be asked to disclose portfolio details and have to reveal a lot less than mutual funds, the idea is to make consolidated data available for various kinds of funds, so that investors putting in money are aware of the returns generated and not mislead by promises of distributors selling the funds.

“Some performance evaluation benchmark would be developed. For instance, an investor would know how much real estate funds which were launched in say 2014 has delivered till now. Rating agencies will also play a role and there may be some level of certification,” said one of them.

The disclosure level of such funds in some of the other markets are higher compared to AIFs in India. Moreover, large institutional investors may have greater access to fund information than individual investors.

Sebi is also discussing with the industry on the issue of PE and VC funds offering discretionary terms to some of the external, more sophisticated, investors who co-invest and enjoy certain special rights.

Such practices, however, are common globally. The industry has been told to prepare a standardprivate placement memorandum (PPM) — a confidential private offering document that is supposed to provide key information to let investors make informed decisions.