PE funds become promoters of mutual funds

The board of the Securities and Exchange Board of India (SEBI) also approved several proposals related to mutual fund sponsorship, ASBA-like infrastructure for secondary markets, debt fund backstop facility and promotion of Environmental, Social and Governance (ESG) in Indian Is. Listed companies align India’s practices with global standards.

Clearing the way for private equity funds to become sponsors of mutual funds has opened up a new business line for them in India’s booming mutual fund industry. PE funds can now set up mutual funds either independently or in collaboration with other firms under an approved framework.

On 27 September 2021, Peppermint It was earlier reported that amid the growing popularity of mutual funds, SEBI may allow PE funds to own local asset management companies (AMCs).

SEBI’s move assumes significance against the backdrop of several existing sponsors and trustees facing liquidity crunch due to inability of their core businesses to generate sufficient capital.

“The amendment also permits continuation of mutual fund business for ‘self-sponsored AMCs’, subject to the said AMC fulfilling certain criteria. ‘This will enable the original sponsor to incorporate a new and qualified sponsor,’ Sebi said. Will be allowed to voluntarily separate himself from MF without doing so.

The sponsor is an entity with 40% or more stake in an asset manager. Currently, only banks, non-bank lenders, or people with more than five years of experience in managing a public pool of funds are allowed to be mutual fund sponsors.

The new norms will pave the way for global PE majors to acquire local AMCs. Peppermint In October 2020, it was reported that private equity giant Blackstone was in talks to acquire L&T Investment Management Limited, the mutual fund business of L&T.

A report by S&P Global Market Intelligence said on February 28 that PE investments in India fell 23% in 2022 from a year ago. The report said India’s PE investment is set to fall to $28.27 billion in 2022, while China, the region’s largest economy, recorded a decline of 45.1 per cent to $70.86 billion.

However, India’s share of total PE investment in the Asia region is expected to increase from 11.9% in 2020 to 25.1% in 2022, as China’s share fell, S&P said.

“PE players are showing interest in the mutual fund industry. There was an advisory committee that made this recommendation a few years back. I believe this is a good move as PE players can add their perspective and support the MF industry and add value to investors,” said Siddharth Modi, senior partner at law firm Desai & Dewanji.

The regulator has also approved a framework proposed in January to protect against misuse of client funds by brokers in the secondary market. A facility like Application Supported by Blocked Amount or ASBA will be optionally offered to investors and stock brokers. This facility allows blocking of funds for trading in the secondary market through UPI.

Sebi’s board meeting came in the wake of a scathing report by US-based short-seller Hindenburg Research amid the ongoing political debate over Adani Group’s business dealings.

SEBI Chairperson Madhabi Puri Buch said that the market regulator will follow the advice of the Supreme Court in the Adani case and the regulator is bound to follow it.

The court had earlier this month asked Sebi to probe whether there was any violation of market norms and manipulation of shares in the Adani group.

Buch said Sebi would not comment on the Hindenburg report on Adani as the matter is sub judice.

In order to set up the Corporate Debt Market Development Fund (CDMDF) as an alternate investment fund, the Board has approved SEBI (Alternate Investment Fund) to serve as a backstop facility for purchase of investment grade corporate debt security in stressed situations. Change in Regulations, 2012 adopted. To give confidence to the people in the secondary market in general and to improve the liquidity of the corporate bond market. Elaborating on the fund, Buch clarified, “SBI AMC will be the main stakeholder of the proposed fund.” Finance minister Nirmala Sitharaman had said last year that the government had accepted the proposal for the fund.

A BRSR (Business Responsibility and Sustainability Report) core will be introduced, containing a limited set of key performance indicators for which listed entities will be required to obtain appropriate assurances to enhance the credibility of ESG disclosures.

A glide path has been set for the applicability of the BRSR core, starting with the top 150 listed entities (by market capitalization) from FY24, which will be gradually extended to the top 1000 listed entities by FY27.