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.
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 like to act as sponsors for GIFT City AIF’s which to them otherwise seem very interesting today, 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.
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. While 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, it however inhibits and restricts quite a few young professionals with relevant experience in setting up funds in GIFT City for the lack of profitability or for lack of being regulated.
A domicile is only as good as the depth of the ecosystem. Further, the ecosystem needs new age committed 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 practises & 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. Further, at the end of the day it is more important to see the skill of those who act as sponsors to understand businesses and promote investment. The sponsor may not necessarily be the manager but an anchor or a sentinel investor .
Coming to the AIF industry, 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.
Can we therefore ask for clarification to provide for the following?
By virtue of all of them meeting the criteria jointly or individually, they will automatically be committed to the fund or invest to act as a sponsor and not necessarily manage in terms of bringing in the minimum contribution to be fund sponsors, finally deeping the ecosystem of the domicile while judiciously using precious foreign exchange..
While thinking for this country and its fund offshore ecosystem.