Navigating Regulatory Uncertainty - Hedge Funds Evaluate Investments in India

Hedge funds are considering pulling their investments from India due to new rules introduced by the country’s markets regulator, Sebi. These rules, a response to last year's short seller attack on Adani, require big foreign investors to reveal all their end investors, causing concerns among hedge funds about practical difficulties and departure from international norms.

Global banks, including JPMorgan and Goldman Sachs, also expressed concerns about the rules, fearing they would face challenges in supplying investors' information to Sebi. However, the regulator has clarified exemptions for many funds, easing some concerns.

Still, hedge funds remain worried about the impact of the rules, which require foreign investors with over $3bn of assets in the Indian market to disclose detailed information about their end investors. This includes any hedge funds using prime broking services at banks that have breached the $3bn threshold and investors heavily invested in one company.

AIMA, a hedge fund trade body, voiced concerns to Sebi, highlighting the practical difficulties faced by foreign investors. Sebi's move to unmask foreign investors follows pressure after a short seller report on the Adani Group caused significant losses. Additionally, it's part of a wider government effort to track money inflows from neighbouring countries like China.

Overall, while these rules aim to bring transparency, they have caused apprehension among hedge funds and global banks, highlighting the delicate balance between regulation and investment attractiveness.