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4 hedge funds allowed to register as FIIs

In a marked shift from its earlier rigid stance, the Securities and Exchange Board of India (Sebi) is allowing hedge funds to register as foreign institutional investors (FII) category, albeit in a cautious manner.
At least four foreign funds viz, Milan, Italy-based Aletti Gestielle Societa, Toronto-based DGAM Emerging Markets Equity Fund, Karma Capital Management and Blackrock Advisors, which are all known for using hedge fund investment strategies, have been granted FII registration by the regulator in recent weeks, triggering speculation that Sebi is slowly allowing hedge funds an entry into the domestic markets on a case-to-case basis, sources said.
They said the regulator was looking at the applicant’s track record, general reputation of fairness and integrity and more importantly, whether the applicant was registered by a recognised regulatory authority in other markets, before giving them entry to the domestic markets, rather than whether they plan to use hedge fund strategy or not.
The move, sources said, was aimed at making less attractive the practice adopted by hedge funds to invest in the Indian markets indirectly through the participatory notes (PN) route.
Several India-focused hedge funds already have exposure in the domestic equity markets (through the PN route), out of their offices based in Singapore as India has a double tax avoidance agreement with the city-state.
Amoeba Capital Partners, run by Ashutosh Sinha, who was earlier managing director and head of investments for Asia (ex-Japan) at Morgan Stanley and Samir Arora-run Helios also manage India-focused hedge funds.
Other India-focused hedge funds are India Capital Fund, Atyant Capital India Fund, Boyer Allan India Fund and Avatar India Opportunities Fund. Boyer Allan India manages about $1 billion worth investments in India.
But, it is not known whether the investments are through the PN route or through the FII route. Others like Avatar Investment, advised by Pasupati Advani of Advani Share Brokers and Kuvera Capital, which was shortlisted for the best Indian hedge fund in 2006 by global hedge fund tracking firm Eureka Hedge, also are active in the domestic equities market, sources said.
About half of the $50 billion exposure by FIIs in Indian stock markets is estimated to be through the PNs. A recent study by Eureka Hedge says Indian exposure by the hedge funds accounted for accounted for one per cent of total global hedge fund assets of nearly $1.5 trillion.
“India- and China-focused funds were on the rise while the numbers of Japan-investing funds declined, over the past three years,” it said.

Source : Business Standard

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