No funding winter in AIF arena, says Sebi member Ananth Narayan

At a time when foreign portfolio investors (FPIs) are net sellers in the Indian stock market and marquee start-ups are still facing funding woes, the alternative investment funds (AIFs) seem to be gaining popularity.

According to Ananth Narayan Gopalkrishnan, whole-time member at the capital markets regulator Securities and Exchange Board of India (Sebi), commitments in the AIF arena saw a jump of nearly 45% in the past one year with the total number of investors nearing 15 million mark.

“The commitments now have reached 10.8 lakh crore, a 44% increase year-on-year growth on the total size of the commitment,” said Ananth Narayan, while speaking at a conference organised by IVCA.

“For all of the funding winter and all of that, we’re still going great guns as far as the AIF commitments are concerned,” he added.

He further added that actual investments have touched Rs 4 lakh crore and that again has shown a 35% compounded annual growth rate over the last five years.

There are now approximately 14 million investors in the entire AIF ecosystem, said the Sebi member.

“In terms of commitments, it is about 50% foreign and 50% domestic. In terms of investments, it’s about 35% foreign and 65% domestic. Actual investments are still heavily weighted towards domestic,” he said.

Meanwhile, the actual investments for funds that have closed from 2012 to date seem to be only about 60–65% of the commitments (weighted by value).

Further, only about 7% of the actual investments go into start-ups, as defined by DPIIT.

Incidentally, the Sebi member stressed the importance of a collaborative approach especially in the context of regulatory concerns.

He also highlighted a key concern of policymakers and regulators.

“We are seeing situations where the AIF structure has been used to circumvent existing financial sector regulations... We have got to be very clinical about this; we must ensure trust in the ecosystem. At the same time, we have got to make sure we don’t come in the way of good, productive capital formation," said the Sebi member.

As part of his attempts to allay industry concerns, the Sebi member also touched upon the issue related to liquidation scheme.

“We are doing away with it. We are proposing that you can continue with existing funds, but we will have checks and balances to ensure that our concerns around valuations, performance of the manager—all of that is taken care of. We will find a way out without necessarily requiring a new liquidation scheme,” he said.

He also added that Sebi is proposing that AIF investments into infrastructure SVPs will be allowed for raising debt in that SVP. In association with the RBI, a special situations fund will also be launched, he said.