Powerpoint Templates Page 1 Powerpoint Templates Alternative Investment Fund (AIF)

Powerpoint Templates Page 2 Alternative Investment Fund (AIF) AIF means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a corporate body which is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors;

Powerpoint Templates Page 3 Regulation of private pools of capital assumed significance with the financial crisis of 2008 The G ‐ 30 Report in 2009 recommended that ―”Managers of private pools of capital that employ substantial borrowed funds should be required to register with an appropriate national regulator” SEBI proposed a Regulatory framework for Alternative Investment Funds on August 1, 2011

Powerpoint Templates Page 4 Three categories of AIF The Category I AIFs include those investing in start- ups, social ventures, SMEs, infrastructure or other areas that can get government incentives for being 'socially or economically desirable'. The Category II AIFs include private equity funds and debt funds which do not get any incentives or concessions from the government and do not undertake leverage or borrowing other than to meet day-today operational requirements.

Powerpoint Templates Page 5 The Category III which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. It includes hedge funds or funds which trade with a view to make short-term returns.

Powerpoint Templates Page 6 Fund raising for AIFs AIFs raise funds through private placement and they cannot accept from an investor an investment of value less than Rs. 1 Cr. The fund or any scheme of the fund cannot have more than 1000 investors and each Scheme should have a corpus of Rs. 20 Crore. The manager or sponsor/ promoter of the AIF should have a continuing interest in the AIF of not less than 2.5% of the initial corpus or Rs.5 crore whichever is lower. AIFs of Category I and II are not permitted to invest more than 25% of the investible funds in one Investee Company while it is 10% for Category III AIFs.

Powerpoint Templates Page 7 HEDGE FUNDs - MEANING A hedge fund is a pool of funds, contributed by high- net-worth individuals (HNIs) that invests its assets with an objective of generating superior returns in various markets such as stocks, currency and commodity. Hedge funds typically deploy complex bets while taking counter positions to hedge speculation risk. Although a hedge fund, schematically resembles a mutual fund, it is different in its operations.

Powerpoint Templates Page 8 A hedge fund is limited to a small number of investors who invest in different type of asset class and generally deploys investment strategies across various markets. On August 20, 2012, India’s first hedge fund (HF) Forefront Alternative Investment Trust was registered (Forefront Alpha Scheme) with the Securities and Exchange Board of India (SEBI) under the Alternative Investment Funds Regulations (AIF).

Powerpoint Templates Page 9 Regulatory perspective AIF guidelines regulate the operation of hedge funds by laying down stringent conditions for investment criteria, disclosures, investors’ protection strategy and so on. The regulations have categorised such hedge funds under Category-III AIFs who are allowed to employ diverse or complex trading strategies and leverage. So far, 73 AIFs have registered themselves under the new guidelines including 15 hedge funds.

Powerpoint Templates Page 10 Some of the key conditions relating to investment criteria Such a fund must manage assets worth at least Rs 20 crore. Minimum contribution from an individual investor must be at least Rs 1 crore. To impress accountability and responsible investments, the manager/sponsor must own a stake of 5 per cent of the assets under management or Rs 10 crore, whichever is lower.

Powerpoint Templates Page 11 Limitation of 1,000 investors for any fund. Transparency in investment decision and periodic disclosure requirements for investor benefits. Restriction on the investment of more than 10 per cent of assets in one company.

Powerpoint Templates Page 12 As per the latest FDI guidelines, 100 per cent FDI in non-banking financial company is allowed under the automatic route in specified activities which include merchant banking, portfolio management services and asset management services (covering hedge funds as well).