Tuesday, April 3, 2007

SEBI propose 2-year lock-in to hedge funds wanting to invest in India

Hedge funds interested in participating in the Indian stock markets have been asked by The Securities and Exchange Board of India (SEBI) to agree to a lock-in period of two years as a cushion against sudden withdrawal under adverse circumstances. Some hedge funds, both new and existing, already have agreed to the lock-in stipulation, as per SEBI officials.

Some of these are already invested in the Indian market through participatory notes (PNs), and may want to register directly with SEBI and invest with a two-year lock-in. SEBI chairman M Damodaran is trying to persuade many other new hedge fund applicants to provide a lock-in undertaking. The regulator also wants to ensure that hedge funds registering directly with it are regulated in the country of their origin. This information is being gathered by SEBI within 24 hours from a multilateral body of global regulators. Once the hedge fund comes upfront, SEBI is able to determine whether it is regulated in the home country. Having ensured this, the other comfort being sought is whether the fund will agree to a two-year lock in period. Sources said those who agree to this will get a preference in entering the Indian stock market.

In the past, SEBI had considered allowing hedge funds as it felt that they could be an additional source of liquidity besides diversifying the pool of foreign investments in the local market. As part of policy options, it was suggested three years ago that hedge funds could be allowed in the Indian market subject to certain conditions such as ensuring that at least 20% of the corpus should be contributed by investors such as university funds, charitable trusts, endowments, insurance firms, banks and pension funds.

Read more in The Economic Times article.

No comments: