As many as 15 alternative investment funds (AIFs) are being probed by market regulator SEBI for various malpractices and the creation of hybrid structures, reported Business Line.
One of the key aspects that SEBI is looking into is that AIFs are turning into vehicles for company promoters and high net worth investors for cornering shares in the initial public offers (IPOs).
In the IPOs, AIFs can put a large bid and hold shares on behalf of their clients with whom they have special arrangements or agreements. Also, lawyers have structured agreements to the effect of loans to the AIFs by clients, sources told BL.
SEBI has recently tightened norms on IPO investments, which is creating difficulties for HNIs to bet on the primary market issuances since the allocation to them has been put on par with retail investors.
But AIFs are allowed even pre-IPO placements and can even corner large a stake during the IPO in any company, thereby giving them an edge and the motive for dubious deals, the sources said.
In the past, SEBI had banned offshore derivative instruments called Participatory Notes (P-notes) with the view that they facilitated round-tripping of black money. Similar concerns are now being raised on some of the AIFs, the report said.
The AIF industry in India now commands a size of more than $75 billion, which it has achieved in less than five years after structures were passed against P-notes. AIFs are nearly doubling every year.
AIFs are privately pooled investment vehicles that collect funds from sophisticated investors, whether Indian or foreign, for investing in India. Apart from minimum ticket size, there is no other specific structure that AIFs have to follow and hence in several instances it could become difficult to know the ultimate beneficiary or client of a certain AIF who is coming via foreign jurisdiction.