Sebi did surprise inspections of hedge funds and private equity firms

15 Jul 2022 , 09:43 AM

According to news reports, the capital markets regulator recently conducted a number of surprise inspections at the offices of at least 20 AIFs, including domestic private equity and hedge funds, to determine whether these investment managers are fully compliant with the law. Lawyers and market players claimed that these unforeseen regulatory examinations at AIF offices are a recent occurrence because Sebi has recently received complaints about these funds.

According to information obtained from these inspections, Sebi verified that the funds had complied with all applicable securities regulations. This involves adhering to standards for portfolio concentration and promptly informing investors.

In the past, Sebi informed market institutions in advance of the examination, often ten days in advance. According to those in the know, the regulator has suddenly shifted course and is using its authority to unexpectedly turn up at market participants’ registered offices.

Investment vehicles including mutual funds and AIFs have gotten a torrent of money from investors during the stock market surge from March 2020 to October 2021. According to Sebi data, the total amount of investments made by AIFs increased by 85% from March 2020 to March 2022, reaching Rs2.84 lakh crore. AIFs have proliferated all throughout the country in response to investor demands for mutual fund offerings that are distinct from one another.

According to some attorneys, Sebi’s extensive use of the surprise inspection powers could result in a higher compliance burden and litigation over the assets. According to lawyers, AIF laws are intended to be “light touch regulations,” which means little regulatory involvement, in contrast to mutual funds and brokerages, which primarily serve sophisticated investors.