SEBI’s Approval of New AIFs Widens Real Estate Investment

Securities and Exchange Board of India (SEBI) approved two more entities with the view of setting-up Alternative Investment Funds (AIFs). AIFs are regarded as newly created class of pooled in investment in private equity (PE), other hedge funds. This will invite real estate investment also.

According to the received information SEBI has given approval to two AIFs in a period less than a month. Besides these two approvals SEBI had already approved seven others. These AIFs were allowed to set up shops in India. Some reliable data sources disclosed that there were around 20 pending applications waiting for their registration as AIFs. This is the case as on 31st of August 2012.

Earlier in May 2012 the regulator had notified the guidelines for AIF, a new class of market intermediaries. Basically AIFs are established or incorporated funds which aim at pooling in of investment or capital from both domestic and foreign investors. This investment will be in accordance with the pre-decided policy. Real Estate Opportunities Trust and Dicci Trust are the two newly registered AIFs with SEBI. Real Estate Opportunities Trust assures more real estate investment.
The AIFs which had been registered earlier with SEBI are IFCI Syncamore India Infrastructure Fund, Utthishta Yekum Fund, Excedo Realty Fund, KKR India Alternate Credit Opportunities Fund, India Quotient Investment Trust, Sabre Partners Trust and Forefront Alternate Investment Trust.  SEBI reported that these applications were done in the period from July to October this year. Majority of the applications were submitted in August and the rest in July, September and October.

In August SEBI had determined that 10 per cent of equity to AIFs can be off loaded by the promoters of listed companies. This equity fund to AIFs can be in forms of SME Funds, PE funds, Venture Capital Funds and Infrastructure Funds. This equity must be registered with the market regulator so as to earn a minimum 25 % public holding.

SEBI guidelines offer three broad categories for AIFs to operate. The SEBI rules are applicable to all AIFs despite their nature of operation as private equity funds, hedge funds or as real estate funds.

The Category-I AIFs include Infrastructure Funds, Social Venture Funds, Venture Capital Funds and SME Funds. This first category is eligible for attaining government incentives.
The Category-II AIFs hold the provision to invest in any combination and in any field but have no permission to raise debt, except for meeting their day-to-day operational requirements. PE funds, debt funds and other funds which do not fall inside the ambit of two other categories are included in the second category.

The Category-III AIFs are those funds which trade with a view to make short-term returns. This category includes hedge funds.

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