Funds Hotline: Structuring India Focused Funds; June 29, 2017

• Unified structures have emerged as a preferred choice for structuring India focused funds.
• Such structures are gaining popularity for various commercial, legal and tax reasons which are briefly discussed in our article.
• A unified structure has its unique set of commercial terms which are incorporated in the fund documentation. In our article, we discuss some of the most commonly used fund terms in a unified structure.

In 2012, SEBI took steps to completely overhaul the regulatory framework for domestic funds in India and introduced the AIF Regulations. In 2015, a tax-pass through status had been hardwired for certain categories of AIFs by the Finance Act, 2015. In early 2016, the exchange control norms were revised so that Indian managed and sponsored AIFs receiving foreign investments were put at par with domestic investors vis-à-vis making downstream investments.

According to recent global LP surveys, India is being seen as the most attractive emerging market for allocating fresh commitments. [You may access the survey at http://empea.org/research/2017-global-limited-partners-survey/]. While 2015 and 2016 saw an year-on-year decline in India-focused fund-raising, this may have been due to renewed focus by GPs on deal-making given the dry-powder overhang. However, as GPs hit the road in 2017 for new fund-raises, the year promises to be an interesting vintage for India-focused funds.

To accommodate both domestic investor base and offshore investor base, unified structures have emerged as a preferred choice for structuring India focused funds. There is also an increased participation from development financial institutions (“DFIs”) in India focused funds, including unified structures. Accordingly, some global benchmarks need to be followed when designing the structure and calibrating the fund documents including the governance, fiduciary aspects and adherence to Environment and Social (“ESG”) policies.

In our article published in EMPEA’s Legal and Regulatory Bulletin (Spring 2017, Issue no. 21), we discuss the ‘unified structure’ with applicable variations, for India-focused funds as being the most popular choice for managers looking at both offshore and domestic pools of capital and the common fund terms negotiated between LPs and GPs in a unified structure.

You may access our article at: http://www.nishithdesai.com/fileadmin/user_upload/pdfs/NDA%20Hotline/170629_H_PDF_Structuring-India-Focused-Funds.pdf

We also recently hosted our flagship event on Lifecycle of India Focused Funds in New York for LPs, GPs and other stakeholders in the funds industry, where we focused on emerging structures for raising India focused funds, LP expectations (segregated for retail, institutions and DFIs) and held special sessions on Impact Investments and structuring Investments and Exits, particularly in light of the recent Indian legislative changes and the current state of the LP-GP dialogue. You may access the video of our event at: here.

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