Sebi Permits PE Funds To Become MF Sponsors, Strengthens Trustee Role & Accountability
Capital markets regulator Sebi decided to enable private equity funds to sponsor a mutual fund house because they can offer strategic guidance and talent to fuel industry growth. The decision follows the acquisition of IDFC Mutual Fund by a consortium comprised of Bandhan Financial Holdings, Sovereign Wealth Fund GIC and private equity fund ChrysCapital.
Furthermore, the Sebi board has resolved to allow “Self Sponsored AMCs” to continue operating as mutual fund managers. This is conditional on asset management firms (AMCs) meeting certain criteria. The change would allow the original sponsor to freely withdraw from the MF without having to induct a new and eligible sponsor.
In addition, Sebi has approved a request by an AMC board to form a unit holder protection committee (UHPC). This is part of Sebi's effort to establish an independent review mechanism for AMC decisions from the standpoint of unit holders' interests across all goods and services.
Furthermore, the market regulator has authorised a framework to strengthen the role and accountability of mutual fund administrators in order to protect the interests of unitholders.
The regulator has decided to establish the Corporate Debt Market Development Fund (CDMDF) as an Alternative Investment Fund (AIF) to serve as a backstop facility for the acquisition of investment-grade corporate debt securities during stressful times.
This is intended to boost trust among corporate bond market participants while also improving secondary market liquidity.
CDMDF may raise funds for the purchase of corporate debt securities during the market disruption, the regulator said in a press release following its board meeting, based on a guarantee given by National Credit Guarantee Trust Company (NCGTC).
Furthermore, Sebi has resolved to allow contributions to the CDMDF's initial corpus from the specified debt-oriented mutual fund schemes and asset management companies of mutual funds.
“Access to the fund for selling securities during market dislocation shall be granted to specified mutual fund schemes in proportion to mutual fund contributions,” Sebi stated.
In addition, the board authorised the framework for triggering CDMDF asset purchases during market disruption.
Concerning mutual fund sponsors, Sebi has decided to introduce an alternative set of eligibility criteria to allow private equity funds that do not meet the current requirement to act as mutual fund sponsors, as well as to strengthen the existing eligibility requirements to ensure that only high-quality entities qualify.
Currently, any company that owns 40 per cent or more of a mutual fund is considered a sponsor.
Sebi has approved amendments to mutual fund rules to provide for the identification of specific areas as core responsibilities of Trustees, which will necessitate an independent evaluation and due diligence by Trustees.
Furthermore, areas of possible conflict of interest between AMC's shareholders and the unitholders of its schemes were identified.
“The amendment shall also explicitly make the Board of AMC responsible for protecting the interests of unitholders in addition to the interests of AMC stakeholders,” Sebi said.
