Hedge funds face India exposure cap

The Securities and Exchange Board of India is expected to come out with guidelines for hedge funds' operations in the domestic markets, reports Vyas Mohan.

The Securities and Exchange Board of India (SEBI) is expected to come out with guidelines for hedge funds' operations in the domestic markets soon. The market regulator may allow single hedge funds invest only 49 per cent of its investment corpus in India.

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"We are looking to provide a broad-based, registered and regulated platform to these entities depending on their individual track records," a highly placed official in Sebi told Hindustan Times.

Hedge funds are aggressively managed portfolio investments that use strategies like leveraging, taking long or short and derivative positions in the markets in order to make high returns.

Several well-known hedge funds have already been granted entry into the Indian stock markets, a few months after the market regulator imposed curbs on participatory note investments.

The previous Sebi Chairman M Damodaran used to reiterate it time and again that the regulator was more confortable with hedge funds coming into the domestic market through the front door (as registered entities).

According to the source, new hedge fund registrations in the domestic market will be based on the funds' track record.

"In case of newly set up hedge funds, they will be given an entry if its fund manager has a good one-year track record," the source said.

The recent fast-track registration mode thrown open for foreign investors after they were told to wind up contracts built up with derivatives as underlying through the participatory note route, has already seen a few prominent hedge funds like the Old Lane LLP (a Citigroup fund) register their names with the regulator.

"We have registered around 200 foreign institutional investors in the last two months, among which there are at least 20 hedge fund names," the Sebi official said.