Greater flexibility for alternative investment funds (AIFs) will also mean greater responsibility for the industry to strengthen governance and protect investors, Securities and Exchange Board of India (SEBI) whole-time member Sandip Pradhan said on Wednesday.
The markets regulator expects its revised accreditation framework to significantly expand the pool of accredited investors, potentially taking the number to four lakh from around 2,000 currently, Pradhan said at a Confederation of Indian Industry (CII) summit on alternative investments.
The changes could take the number of accredited investors to four times the existing total AIF investor base of around one lakh, he said.
Investor eligibility
SEBI’s board approved changes to the accreditation framework in September, including allowing investors to qualify based on their securities market investments and permitting fund managers to determine investors’ accredited status.
Pradhan said the revised framework would help widen participation by investors who have the financial capacity to take on higher risks. A circular detailing the approved changes will be issued soon, he said.
The push for easier accreditation comes as SEBI seeks to give sophisticated investors greater flexibility while ensuring that the expansion of private markets does not weaken investor protection.
“Today the challenge is more nuanced,” Pradhan said, adding that the industry’s demand for greater flexibility in investment structures, co-investment, leverage and differentiated rights for sophisticated investors.
At the same time, the growing size and interconnectedness of private markets requires closer attention to governance, conflicts of interest, valuation transparency and investor protection, he said.
Regulatory priorities
Pradhan outlined three priorities for regulating the sector: proportionate regulation, data-driven and risk-based supervision, and stronger governance within the industry. Investment committees, compliance officers, trustees and senior management must ensure that the additional flexibility available to AIFs is used responsibly, he said.
The regulator also wants the industry to play a more active role in shaping rules. Pradhan called for “rigorous, data-backed” proposals from market participants, saying a responsive regulatory framework would require mature and proactive engagement from the industry.