Equal Opportunity for Indian Sponsors to deepen our offshore ecosystem GIFT IFSC
CA. Aditya Sesh is a Chartered Accountant by training and a Fellow Member of the Institute of Chartered Accountants of India. He is the Founder and Managing Director of Basiz Fund Service Private Limited and has been closely associated with the financial services industry, notably the international fund accounting and administration industry for the past 25 years.
After qualifying as a Chartered Accountant in 1992, he commenced his career in the financial services industry in India and worked closely with the then leading market leaders who were trying to position India as the next investment destination in the light of the blockbuster economic reforms of 1991. Shortly after this, he was instrumental in working on mega deals in the infrastructure sector and was able to successfully achieve financial closure for big ticket Independent Power Projects.
Here's an excerpt of an conversation with CA Aditya Sesh.
Q. RBI permitted fund managers to make sponsor contributions to AIFs in Gift City. How will this boost the Alternative Investment Funds (AIF’s) in India and do you see any roadblock?
At the outset, I must thank the Reserve Bank of India for permitting Fund Managers resident in India to become sponsors of Alternative Investment Funds (AIF’s) domiciled in Gujarat International Fin-Tec (GIFT) City under the aegis of the IFSCA.
Equal Opportunity for Indian Sponsors to deepen our offshore ecosystem GIFT IFSC is the main objective of this clarification. Our managers or resident Indians as sponsors will have a positive impact on both non-resident investors as well as increase the number of funds.
I would however like to highlight an issue being faced in this respect. I came across this repeatedly, during my interaction with Resident Indian Fund Managers, who would like to act as sponsors for GIFT City AIF’s, thanks to numerous initiatives of our Government, the Finance Ministry, the RBI and the IFSCA. While RBI has rightly allowed resident Indian managers or sponsors to become sponsors in a GIFT domiciled fund, it would be immensely helpful if some of the eligibility criteria mentioned is fine tuned to assist sponsors, who among other things, may also have a sound industry (not necessarily financial services) background to participate as Sponsors in such a fund. Sponsors under the AIF regulation and in recent times are not always the managers and are many times people with enormous entrepreneurial experience. In fact, most of the earlier fund managers in India and even today are successful entrepreneurs or business persons.
Q. Can you throw some light on what the clarification and the notice state?
The clarification and the notice specify that the fund managers need to have a three-year track record of profitability as well as be regulated by any regulator; in this case, most of the time by the Securities and Exchange Board of India. These criteria themselves are very conducive and are borne out of operational businesses investing overseas and judiciously using foreign exchange and to ensure that ‘fit and proper’ persons invest and participate as sponsors in a GIFT domiciled fund, however inhibits and restricts young professionals as managers or sponsoring investors with relevant experience in setting up funds in GIFT City for the lack of profitability or for lack of being regulated.
Q. What kind of skillset, expertise one needs to have for being eligible to participate as sponsors?
The ecosystem needs new age committed professional sponsors or managers with relevant professional qualifications and experience. In fund management, the entity is only a reflection of the professionals or the acumen behind the entity. This concept has been very clearly enunciated in many of the practices and landmark legislations in corporate India where it is always said that the corporate veil needs to be lifted to see the relevant intent and actions of the corporates and the people who run them. The sponsor may not necessarily be the manager but an anchor or a sentinel investor.
Further, it needs a proper blend of people with financial services as well as industry background to ensure that the management of these funds is carried out very judiciously, in conformity with the law of the land as well as in ensuring a return on the invested funds. It may be worthwhile to consider this too as a part of the eligibility criteria to participate as sponsors in an AIF domiciled in GIFT City.
Q. What measures can be taken, rather needs to be taken to expand the ecosystem of the domicile by astutely using precious foreign exchange? Is there any need to ask for clarification with regards to this?
Permit body corporates in India who have a three-year track record in any business and industry to participate as sponsors in GIFT City Funds; Or
Permit individual professionals who may be regulated and who have a minimum postgraduate or professional qualification and 10 years of Investment or industry experience or those who have completed courses conducted by National Institute of Financial markets or any other equivalent course to participate as sponsors in GIFT City Funds Or
Permit entrepreneurs with track record of investments or successful exits to participate as sponsors in GIFT City Funds and
Permit joint ventures between corporates or business persons or professionals coming together to invest or act as a sponsor in a GIFT fund.
By virtue of all of them meeting the criteria jointly or individually, they will meet the regulatory intent or requirement. This will deepen the ecosystem of the domicile while judiciously using precious foreign exchange.
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