Gopal Srinivasan, chairman and managing director of TVS Capital Funds, recently took on two new roles. Early this month, he became a member of market regulator SEBI’s advisory committee for alternative investment funds, and also got elected as vice chairman of the executive committee of the Indian Private Equity and Venture Capital Association (IVCA). He is in line to become chairman of the industry body next year. In a chat with VCCircle, Srinivasan shares his views on how the government is taking baby steps on acknowledging the PE and VC community in India.
What are the measures taken by the SEBI committee to enhance the health of the PE and VC industry in India?
First of all, we should appreciate that Sinha (SEBI chairman UK Sinha) has taken the initiative to form a standing committee for primary and secondary markets. It has a good combination of investors, government officials and tax experts. It aims to make PE and VC activity vibrant. It will focus on the major drivers that will give a large impetus to growth. There is lot of focus on how we can increase domestic and foreign capital flow and how to make the tax regime efficient. The committee will also ensure that the AIF framework is conducive to growth of fund managers. It has just started and will now figure out what steps to be taken. SEBI says it is a listening organisation—this will give it a chance to listen to industry views.
Are there any suggestions to form a strong investor (Limited Partners) base in India?
The most recent development we have had is to allow pass-through taxation in the Budget as it was slowing down fund collection pooling. This was a positive first step in terms of fundraising in India. PFRDA (Pension Fund Regulatory and Development Authority) recently announced that it will allocate investments from pension funds. Globally, pension, insurance and family offices account for 80 per cent of all funds collected. The pass-through status is important for HNIs and family offices. What remains to be done is some tweaks in the pass-through status which government is talking about. A withholding tax is envisaged in the pass-through system. If you are not paying tax, then there should be a way to claim no TDS for such funds. The government is working towards such issues bringing administrative clarity and efficiency. The last barrier is that PFRDA should officially enunciate the commitment to allocate investments for AIFs. Ideally, there should be a targeted allocation.
How do you perceive government’s steps in ensuring sustainability of fund managers in India?
IFSC (International Financial Services Centre) rules are going to be notified this year where it will be a free trade zone for financial services. The first one is to be set up in Gandhinagar, Gujarat. This is a big step where any activity in this zone will be considered as if it is an offshore activity. Dubai Financial Services Authority is a similar system. This will be absolutely world class in terms of regulatory framework. In addition to talking about “Make in India” for manufacturing, we should talk about “Manage in India” for funds. The fund manager should not say I want to be based out of Mauritius or Singapore because he is afraid of tax issues. Now with permanent establishment, safe harbour and IFSC, a fund manager can operate comfortably in India as a resident, managing overseas money and not being worried about having Indian tax rules applicable to his income. I see this as a major breakthrough.
What will be the major agenda for IVCA this year?
We aim to make sure that all tax bottlenecks have eased out, ensuring that new funds come in and balance of issues in terms of PFRDA are put to work. For the first time, we have absorbed $16 billion worth of PE/VC money, as per VCCircle estimates. To put this kind of money to work, you need a wide spectrum of fund managers in India. We should make it easy for them to start their funds and convince investors not to worry about which tax rule will affect them. This is the single-minded goal of IVCA. People forget that PE and VC is a job creating industry. It is the only industry within the capital markets which does that.
SEBI has announced plans for creation of a platform on the stock exchange for startups. What are your views?
Looks like SEBI chairman is keen on giving the startup culture a boost. This platform will be within the existing stock exchanges which will be for startup listing and will be more flexible on profit and valuations. Initial participants will be those like financial institutions, AIFs, HNIs and family offices who can make discriminating financial investment decisions. Why should we list in Singapore or London or New York? I would say “Manage and list in India” for financial investments. I think you will see a lot of success for such listings in India and foreign investors will participate as much through Indian exchanges. Every Indian fund manager is going after startups. Talented employees have joined startups. For every successful startup, there will be 18-19 failures and India is comfortable with that fact today. But all of this requires fund managers. One of the things SEBI needs to ensure is that AIFs can participate actively in both primary and secondary issues.
PE funds have also started participating in late-stage startups which was not the case earlier…
I think the distinctions are blurring. TPG and Carlyle are investing in late-stage ventures. Sequoia is putting Rs 300 crore in a company. Ticket sizes are going up and now stress companies are going to come to the market once RBI enforces the rule of banks taking up 51 per cent of stake in a company in case it defaults on repayment. Classical buyout funds will be ready now for such a step. You will witness lot more buyouts from PE now.
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