Even as the commitments raised by alternative investment funds (AIFs) have surged to ~10.84 trillion, there is a gap in the actual investments, said Ananth Narayan, a whole-time member (WTM) of the Securities and Exchange Board of India (Sebi).
“For some strange reason, the actual investments for funds that have closed so far (since 2012) seem to be only 60–65 per cent of the commitments. This is weighted by value. This is something that we would love to explore a bit more with the industry as to why it is happening or if we are interpreting the data right,” said Narayan.
He added that of these actual investments, only 7 per cent have gone into startups.
As of December 2023, the AIF industry had over 140,000 investors, with investments touching ~4 trillion.
The Sebi official also raised concerns about the valuations where the regulator observed cases where they remained ‘stale’ or the same for a long period.
“We also see sharp drops in valuation as the fund comes close to maturity,” said Narayan, addressing industry executives at a conclave by the Indian Private Equity and Venture Capital Association.
The Sebi WTM said that the regulator plans to cut the time taken for approvals of AIF applications to one month. He said that at present, no applications were pending for over two months, while the same stood at over 55 applications in December 2022.
Reiterating the need to prevent the evergreening of loans and circumvention of several regulations through AIFs, the Sebi official said that the standards forum has prepared draft dos and don’ts for AIF managers and funds.
Along with a code of conduct, Sebi is working to define the specifics of what constitutes circumvention.
According to sources, the AIF industry had made representations to the Ministry of Finance seeking relaxation on the directive issued by the Reserve Bank of India restricting investments in funds with debtor links.
The industry has requested removing investments by systematically important funds like the Small Industries Development Bank of India, Special Window for Affordable and Mid-Income Housing, and National Investment and Infrastructure Fund from restrictions.
Narayan further said that the market watchdog is working on a framework for special situation funds for acquiring stressed loans. Sebi had first floated the consultation paper on the same in November last year.