AIF applications spike as markets regulator turns cautious: Report

Applications for setting up an alternative investment fund (AIF) have spiked before the Securities and Exchange Board of India (Sebi), reported Business Standard.

Industry players and legal experts observe that a cautious approach and an internal rejig have led to stretched timelines. As of Feb 28, 54 applications for AIFs were under process.

Of these, 24 were made before December 2022, including ones from WhiteOak Capital, ICICI Securities AIF Trust, Piramal Alternatives India Access Trust, Chiratae Trust, and Dalton India, among others.

Of the pending applications, 28 are for Category II AIFs, 11 for Category I AIFs, and 15 for Category III — which caters to retail. In cases where the management is desirous of setting up a fund, without sufficient fund management experience, the market watchdog has been sending several enquiries, say legal experts.

“This segment is growing at a very rapid pace and involves a higher ticket size. Sebi will want to ensure it is managed and regulated properly. Even though investors are sophisticated and understand the risks associated with their investment, it doesn’t absolve the regulator of its responsibilities,” says Neha Malviya Kulkarni, chief growth officer, SuperNAV.

“Now the regulator is inspecting every minute detail in the application document, even on internal research,” she adds. 

Several high-profile fund managers have left the mutual fund industry to set up an AIF. Some are yet to solicit investments due to delays in regulatory approvals.

As of June 2022, total commitments raised in AIFs stood at ~6.94 trillion, recording a nearly sevenfold jump from what it was in June 2017. Of this, ~5.61 trillion is for Category II AIFs and nearly ~74,500 crore for Category III AIFs.

Category I AIFs invest in start-ups, early-stage ventures, and social ventures; Category II AIFs are private equity and debt funds, while Category III AIFs are hedge funds.

Sebi’s queries have been related to the structure, investment management, sponsors, investment strategy, and background of directors and key managerial personnel.

Sebi also has been doing a lot of due diligence to ensure the parties applying have a clear background.

This is its first application under the segment which it had applied for over two months back. Industry experts say before this, the average time taken to process firsttime applications used to be between 60 days and 75 days, while a cooling period of about 30 days was followed for players who already had a registration but were applying for a new fund.