The AIF industry body seeks a review of CCI’s definition of control for PE firms

“When PE funds invest in companies, they have some rights to protect themselves that can be viewed as a control position. So, the question was if there can be an exemption for PE funds,” Srini Sriniwasan, vice-chairperson of the industry body for alternative assests, told Mint in an interview on Tuesday.

Besides, the IVCA discussed measures to boost domestic capital in alternative investment funds (AIFs) to finance infrastructure, credit, startups and growth companies in the pre-budget consultation meeting on 20 June.

The finance minister is expected to present the budget by July end.

Sriniwasan, who is also the managing director of Kotak Alternate Asset Managers Ltd, asked for more clarity on the definition of what constitutes a PE investor. “This money, which is coming from foreign direct investments (FDIs), is not seen as an organized pool of capital as AIFs, which at this point in time is the only recognized PE pool under the law,” he said.

When foreign investors invest through the FDI route, it becomes very hard to distinguish whether it is a PE fund or a strategic investor as the recipient of that money is either a company or the government, he explained. Therefore, a clearer definition that considers the broad-based nature of PE firms, which include both direct and indirect investors, will be imperative.

Chrys Capital’s Ashley Menezes and Rajat Tandon, the president of the industry body, were also part of the discussions. 

Budget expectations

The IVCA is looking for more clarity on taxation of investments in securities that are more readily available to foreign portfolio investors. “What we are asking for is to have the same parity as them, make it as clear and put out additional circular clarifications as the case may be,” Sriniwasan said.

There also needs to be more clarity about the taxation on current interest. “At the IVCA, our primary concern is that people who are domiciling their business in India are collecting money, not just from domestic investors but also from foreign investors. This subjects them to the regulatory oversight in India and contributes to it,” he said, adding that the policies adopted are going to be the critical aspect of how growth is driven to AIFs in the country.

He also alluded to the missed opportunity for domestic investors as over 80% of exits have gone to investors outside the country. He emphasized that these domestic institutional pools of money have been reluctant participants in the industry due to a host of reasons, which include poor past experiences, lesser understanding or the lack of ability to underwrite the managers or strategies.

“As an industry, we want to ensure that the AIF industry can also be a hedge for us as a nation to counter the volatility of global capital like how the mutual funds industry must counterbalance foreign portfolios,” he said.

The industry executives also appealed for more regulatory and legal clarity on AIFs as an asset. The lack of proper recognition has led to a grey area where they end up being taxed at the highest level, which becomes a cause of concern for foreign as well as domestic investors. So, more provisions are needed to level the playing field, Sriniwasan said.

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Published: 25 Jun 2024, 05:15 PM IST