SEBI tightens disclosure rules for hedge funds

India Infoline News Service | Mumbai |

SEBI said Category III AIFs, which undertake leverage would need to submit a report to SEBI on a monthly basis about their activities

Capital market regulator SEBI (Securities and Exchange Board of India) tightened disclosure norms for hedge funds and other alternative investment funds using complex trading strategies, especially for those leveraging investments for higher returns or borrowings.
 
AIFs are segregated into three categories. The Category I AIFs include those investing in start-ups, social ventures, SMEs or infrastructure.

The Category II AIFs include private equity funds and debt funds. The Category III include "diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives". These include hedge funds or funds which trade with a view to make short-term returns.

The directions have been made by SEBI through its 'Operational, Prudential and Reporting Norms for Alternative Investment Funds (AIFs)', which were introduced by the regulator last year as a separate product class.

All AIFs shall be required to comply reporting norms to SEBI on a quarterly basis (for Category I, II AIFs and for those Category III AIFs which do not employ leverage) or on a monthly basis (for Category III AIFs which employ leverage), SEBI said in a circular on Monday.

Category III AIFs shall have to additionally comply with norms pertaining to risk management, compliance, redemption and leverage, it added.
 
The leverage for a Category III AIF shall not exceed 2 times i.e. the gross exposure after offsetting for hedging and portfolio rebalancing transactions shall not exceed 2 times of the NAV of the fund, it further said.
 

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