Wednesday, June 24, 2009

Hedge Funds likely to increase its presence in India

Very few hedge funds are currently registered as FIIs in India. Some of these funds were allowed registration after a scrutiny of the track record of fund managers and were perceived as more of an exception to the rule.

Cayman islands, the Caribbean offshore financial centre and a favourite tax haven of money managers, is one of the most popular offshore fund jurisdiction for funds. Cayman, with its investor-friendly laws, has emerged as the most-favoured jurisdiction for fund formation, and is currently the fifth-largest banking centre in the world.

Cayman, has been admitted as a member of the International Organization of Securities Commissions (IOSCO), the global standard setter for securities markets. The move could encourage SEBI to give hedge funds - most of which are registered with Cayman - direct access to the Indian market.

Some countries either do not allow investment vehicles from non-IOSCO member countries to be sold in their jurisdictions or will require greatly-enhanced due diligence which makes it more difficult to do business with those jurisdictions. The IOSCO membership will remove these impediments and expected to open up markets for Cayman-domiciled securities providers.
As CIMA gets an ordinary member recognition from IOSCO, it may open up an opportunity for several hedge funds and investment funds to seek direct registration with SEBI as an FII rather than use other indirect access routes like third party FIIsThe development comes at a time when emerging markets are competing with each other to attract the huge liquidity created through money infusion by central banks across markets. So far in 2009, India has seen net FII inflows of little over $5 billion.

Contributed By:
Prof. J. N. Mukhpadhyay
(Globsyn Business School)

Source : Economic Times