The regulator may allow insurance companies to invest in private equity funds across sectors, a move that may boost returns for policy holders and help capital starved firms to access funds.
Insurance companies have sought a relaxation in rules governing their investments in private or venture funds, which now permits them to invest only in the infrastructure sector where companies build roads, ports and power utilities.
The Insurance Regulatory & Development Authority, or Irda, is now vetting the proposal, said an executive at the regulator who did not want to be identified. He did not disclose by when a decision would be taken.
“It helps bring in more domestic capital to venture capital funds,” said Luis Miranda, president, IDFC Private Equity and chairman IVCA. “It is important for private equity to have a larger domestic base and insurance companies bring in long-term capital.”
Venture funds and private funds are interchangeable.
Mushrooming private equity funds in India do not have unlimited access to institutional investors unlike in the West where large endowments and financial institutions invest liberally. While wealthy individuals are a major source of funding for them here, banks, dominated by state-run ones, are conservative. They are permitted to invest, with restrictions, in infrastructure funds. Bank funding is slowing since RBI forced them to set aside more capital for investing in such funds.
Private equity investments in India is at $6 billion so far this year, compared with $4 billion in 2009 and $10 billion in 2008, according to Chennai-based Venture Intelligence. There are more than 250 funds registered with India’s market regulator, Sebi.
Investment norms allow insurance companies to invest up to 10% of the venture fund’s size, while for banks, their investments in venture capital funds form part of their capital market exposure. Insurance companies in the past were allowed to invest across all domestic venture capital funds. However in 2008, the regulator had imposed this restriction.
Tata Capital, Aditya Birla Private Equity, ICICI Ventures, Renuka Ramnath-promoted Multiples Alternate Asset Management, Macquarie-SBI Infrastructure Fund and Ascent Capital are among the private equity players that have raised a significant portion of capital from domestic investors such as banks, insurance firms, family offices and rich individuals.
In July, Tata Capital said it would raise about $1 billion from local and international investors. It has raised Rs 900 crore from local investors. While Aditya Birla Private Equity raised its entire $200-million fund from the domestic market.
“Insurance will become an important tool for investment in the coming days and private equity is a great asset class from a long-term perspective,” said Vishakha Mulye, managing director & CEO, ICICI Venture. “The risk-reward is in line with the insurance company’s expectation.”
Source: Economic Times