Insight · India · India, Cross-border
An Indian alternative investment fund is read by who owns and controls its sponsor and manager.
A domestic fund under the securities regulator's rules may hold Indian real estate for foreign and domestic holders, and whether its investments are treated as domestic or foreign depends on the ownership and control of the manager and the sponsor rather than on the register.
India's securities regulator licenses alternative investment funds in categories, and a category II fund is the form most private real estate capital takes onshore. It is a domestic vehicle, with an Indian sponsor, an Indian manager and a trustee, and it may admit foreign holders. For a Gulf platform, its attraction is a single onshore vehicle, regulated, with a register that may mix domestic institutions and foreign capital, investing into development companies beneath it.
The question the rules ask of it is who owns and controls its sponsor and its manager, rather than who holds its units. A fund whose sponsor and manager are owned and controlled by residents is treated as domestic capital when it invests downstream, and the sectoral conditions on foreign capital do not attach at the portfolio company. A fund whose sponsor or manager is owned or controlled by non-residents is treated as foreign capital downstream, and the construction-development rules, the lock-in and the pricing rule reach the portfolio companies as they would for a direct foreign investment.
What that does to a Gulf manager
A Gulf manager that sponsors and manages its own Indian fund has built a foreign-capital fund, with every downstream rule attached and a domestic wrapper around them. A Gulf manager that invests as a holder in a fund sponsored and managed by residents has foreign capital in a domestic fund, with the rules attaching at the fund's level on its own investment and not at the portfolio companies. The two positions are different structures, and which one the manager wants depends on whether control of the investment decisions or freedom from the downstream rules matters more.
The rest of the vehicle
The fund's own rules on leverage, concentration, tenure and disclosure are the regulator's, and they are read as a tier is read in the centres: for what the register may be and what the vehicle may hold. The trustee, the custodian and the valuation regime are prescribed. The exit is a sale of the portfolio company's shares by the fund, priced under the pricing rule if the buyer is resident and the fund is foreign for the purpose, and the proceeds distributed to foreign holders through the bank on the fund's own repatriation position. Each is a line in the structure paper, and the first line is who owns the manager.
Where complexity arises · 6 minute readHolding Indian landThe lawful architectures above an Indian real asset. The company route, the pooled routes, the trap between them, and the exit fabric a structure is built against.
Insights · 19 minute readThe non-resident Indian on a non-repatriation basis is a different legal positionA non-resident Indian or an overseas citizen investing without a right to repatriate is treated by the exchange-control rules as domestic capital, outside the lock-in and the sectoral conditions, and a structure that holds such capital inherits the position.
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Worked in full
- Where complexity arises Holding Indian land
- Where complexity arises The Indian conditions
- Structures Vehicles and legal form