Any AIF having 50% or more contribution from a single investor or investors belonging to the same group should not be entitled to avail benefits designated for QIBs, states SEBI’s consultancy paper.
National markets regulator Securities and Exchange Board of India (Sebi) has pitched for a review of the Qualified Institutional Buyers (QIBs) status conferred on alternative investment funds, venture capital funds and foreign venture capital investors.
Sebi was prodded into looking at this issue after it found out that a few alternative investment funds (AIFs) were exploiting a regulatory vacuum by incorporating members belonging to the same family or group. These AIFs have gone on to invest in IPOs under the QIB quota, effectively violating norms pertaining to QIBs under the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018.
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The regulator found that as on March 31, 2023, some 318 schemes of AIFs had five or fewer investors out of which 210 schemes have either one or two investors. Sebi said that many of these investors belong to the same group, that is, the same family or business group or holding/subsidiary company.
AIFs are pooled investment vehicles that collect funds from investors, and funnel them into different instruments in accordance with a defined investment policy. While AIF Regulations specify that no scheme of AIF shall have more than 1,000 investors, there is no specification for the minimum number of investors in a scheme of an AIF.
QIBs, in general, are large, sophisticated and informed institutional investors, who are perceived to possess the expertise and financial ability to evaluate, invest and manage risks in the capital markets. They are expected to contribute in an expert manner, to price discovery for IPOs/FPOs, and so on. It is also observed that many entities designated as QIBs are professional, expert money managers undertaking investment on behalf of a large body of stakeholders.
The Alternative Investment Policy Advisory Committee (AIPAC) of Sebi considered the issue of the misuse of the AIF nomenclature and consequently concluded that across different categories of AIFs, any AIF having 50 percent or more contribution from a single investor or investors belonging to the same group should not be entitled to avail benefits designated for QIBs.
Concerns of a similar vein were also voiced in cases of designation of FVCIs as QIBs.
“It is noted that FPIs who are individuals, corporate bodies and family offices are not designated as QIBs, so that the flexibility available to QIBs are not available to such entities. However, similar exclusion has not been provided in case of FVCIs. It is important to note that individuals are not eligible to register as FVCIs. To align the conditions for FVCIs with that given for FPIs and to address the concerns related to the designation of FVCIs as QIBs, it is necessary that only those FVCIs who are other than corporate bodies and family offices are designated as QIBs,” Sebi said in a consultation paper it has issued.
The market watchdog has sought comments to the consultation paper from the public and stakeholders by June 1.