Market regulator Security and Exchange Board of India (SEBI), which approved Alternative Investment Fund (AIF) Regulations, appears to be stopping the fund-raising plans of many small real estate private equity funds on the tracks. Industry experts say some may even shut shop.
Under AIF regulations, the detailed text of which has not yet been issued, PE funds are not allowed to accept an investment value of less than Rs. 1 crore from an investor.
"AIF regulations only apply to domestic PE funds for now and there are many PE funds, which would be affected by this," said Akshay Chudasama, partner, J Sagar Associates, legal firm that advises private equity firms. "However, we will have to wait for exact text to see what happens to a PE fund that has got an approval but has not commenced to raise funds through smaller investors."
Speaking on condition of anonymity, an official from a PE company based out of Mumbai, whose PE fund had plans to raise R200 crore through retail investors (investment ticket size Rs. 25 lakh) said, "We have approvals in place and we had hoped to close our fund within next couple of months. As far as we understand AIF, now we will either require consent from 70% of investors to continue with our plans, but perhaps we might have to return the amount to smaller investors."
"Now it is tough times ahead for those private equity players that were relying on small investors for funds," said Sunil Rohokale, CEO, ASK Investment Holdings, a real estate focused PE fund. "There were several real estate funds who were raising funds as less as Rs. 10 lakh to Rs. 20 lakh from investors."
However, industry experts say AIF regulations are beneficial for small investors. "The regulations would safeguard interest of small investors as PE is a riskier investment," added Chudasama.