Market regulator Securities and Exchange Board of India (Sebi) says hedge funds are welcome to invest in India, provided they comply with the existing regulations for foreign institutional investors (FIIs). "Why should we be worried about hedge funds... We are not making any separate set of regulations for them... They have been investing in India through participatory notes. All we are telling them is if you want to come here, come through the front door," M Damodaran, chairman, Sebi told PTI in an interview. "Hedge funds started as a normal class of investors. Over time, they became large with large investors started putting their money in these funds," Damodaran said. Hedge funds are generally speculative funds managing funds for private investors and also collect a part of the profit, beside a management fee from the investors.   more »

It's not difficult to fathom why SEBI chairman M Damodaran is hell-bent on getting guidelines in place to regulate - at least partially - hedge funds in India. Total assets in hedge funds investing primarily in India's markets have risen 400 per cent to $13.97 billion as of July-end 2007 from $2.8 billion at the end of the third quarter of 2005, said HedgeFund.Net, a firm that tracks hedge fund investments. Since over 90 per cent of such funds invest in Indian equity, that's almost one-fourth of the net cumulative investments by foreign institutional investors into the asset class during the period. The interest in India is not without its reasons: "Hedge funds investing in India trail only China as the best performing region or country of investment focus," says the report. This is in stark contrast to 2001-2002, when returns in India lagged those of other emerging markets, especially on account of mistrust in India's markets due to the various stock market scams and the bust-up of US-64, the investment scheme of what was then the Unit Trust of India. In 2001, the average annual returns of the entire hedge fund space tracked by HedgeFund.Net was 11.42 per cent, while that of India-focused funds was a negative 44.12 per cent.   more »