Understanding the regulatory framework for private investment instruments

Abstract

In a recent update (Tiwari, 2023) dated January 06, 2023, SEBI proposed a standard approach to the valuation of companies and announced the appointment of an independent valuer. SEBI's move is part of its ongoing efforts to regulate the PE and VC industry in India, which has seen rapid growth in recent years. The regulator is introducing several measures to improve transparency and investor protection, including regulations for Alternative Investment Funds {AIFs) and the issuance of disclosure requirements for IPO-bound companies. This proactive ness of the government is raising questions like 1) Why regulate private markets where sophisticated investors participate and have the resources and knowledge to protect their interests? 2) What impact will the regulations have on the ecosystem? The following report attempts to find answers to the above two questions. The primary focus of the report is to discuss the regulatory framework in India. The report is divided into two sections. The first section begins with discussing why the private investors believe that the PE-VC industry should remain unregulated, followed by a narrative on the evolution of regulatory framework for the industry in India. The AIF regulations, 2012 and the FVCI regulations, 2000 have been discussed in detail. The report also discusses the concerns of the PE-VC industry and latest developments in the area. The second section discusses the impact of regulations on the PE-VC industry against three parameters - flexibility, efficiency, and attractiveness. The paper concludes with final thoughts on the above two questions and future work required.