Sebi suggests ‘limited’ access to hedge funds

Hedge funds are not directly allowed to access Indian capital markets, but some have invested in offshore derivative instruments such as participatory notes issued by FIIs against underlying securities. The report suggested hedge funds seeking Sebi registration under FII rules should be subjected to stricter scrutiny. It suggested the investment adviser to the fund should be a regulated investment adviser while the fund should be registered. It further states that at least 20 pc of the fund should be contributed by strong institutional investors such as pension funds, university funds, or insurance companies.

‘‘The presence of institutional investors in the fund is expected to ensure better governance on the part of the fund manager and fund administrators,’’ the report said.

Sebi will seek public opinion and take the matter to its board before making suitable amendments to existing FII rules.

Through PNs, hedge funds can invest without directly entering the Indian market as FIIs or their sub-accounts.