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15 AIFs under Sebi lens for ‘malpractice': report

Business Line  

Fifteen alternative investment funds (AIFs) are being probed by capital markets regulator Sebi for various malpractices and the creation of hybrid structures. A key aspect being looked at is that AIFs are turning into vehicles for company promoters and high net worth investors for cornering shares in the initial public offers (IPOs). In the IPOs, AIFs can put a large bid and hold shares on behalf of their clients with whom they have special arrangements or agreements. SEBI has recently tightened norms on IPO investments, which is creating difficulties for HNIs to bet on the primary market issuances since the allocation to them has been put on par with retail investors. But AIFs are allowed even pre-IPO placements and can even corner large a stake during the IPO in any company, thereby giving them an edge and the motive for dubious deals. In the past, SEBI had banned offshore derivative instruments called Participatory Notes (P-notes) with the view that they facilitated round-tripping of black money. Similar concerns are now being raised on some of the AIFs. Another aspect that is being looked into by the regulator is the requirement that AIFs cannot invest more than 10% of their investible funds in any of their investee companies. SEBI has come across instances where AIFs were flouting these norms.