How to Set up a Hedge Fund (Trust) with Indian Money in India

I know, Hedge funds or Private Equity funds are not allowed to be based in India. Someone told me they can be run as trust, will you have any idea how is that possible.

Also, can you please tell me which are funds (private not mutual) that are set up with money raised in India.

I would appreciate your answers.

Thanks,

from India

Yes, it is right. Recently SEBI has issued strict rules for setting up hedge fund in India. According to this:

1. #  The rules also say that the fund manager or investment advisor must have a minimum three-year track record in managing funds with an investment strategy that is similar to that of the applicant fund.

2. # "This provision is expected to allow well managed funds to access our market and at the same time, keep our markets insulated from the possible adverse effects of 'trial and errors' by uninitiated rookies," says Sebi in its draft regulations.

3. # Incidentally since hedge funds are not regulated entities, they cannot register as an FII under Sebi's regulations.

4. # Sebi's draft paper has recognised the fact that some hedge funds may be operating in India through sub-accounts.

According to Sebi data, at the end of March, 2004, the total investment by hedge funds in offshore derivative instruments (participatory notes) against Indian equity is Rs 8,050 crore (Rs 80.50 billion) or about eight per cent of the total net equity investments of all FIIs.

Some tips to Set up a Hedge Fund in India

1. # Like any other trust, hedge fund is also a fund under an organisation. There are many parts of this organisation but two is most important one is investment manager and other is custodian. Custodian  is financial entity that holds hedge fund assets. This includes cash in the fund as well as securities.

2. # There are some good tips for setting up a hedge fund in Madrasi.info

• Prior to finalizing investment, take couple of months to know about the hedge fund industry in India. The age of hedge fund industry, the key players, their worth, the operational risks, the pros and cons of investing in hedge funds etc
  
• Identify potential hedge funds, refer commercial directories or databases. Account for your investment goals, risk tolerance level, amount allocated for investment.
  
• Get to understand the ground realities of regulatory factors, its implications; how business is run in India all helps.
  
• Read blogs, financial magazines, websites, news articles, white papers on hedge funds in India. Talk to personnel; preferably interact with hedge fund managers involved with hedge fund investments and those who have already invested in hedge funds.
  
• Notice annual events like Hedge funds world India to gain an assessment of the burgeoning Indian hedge fund industry.
  
• Approach wealth manager in wealth management companies, securities broker or licensed investment consultant for advice on hedge fund investments in India.
  
• Understand terms related to hedge funds, remittance, management fee and performance fee, withdrawal and redemption fees.
  
• Check the pros and cons of long-term hedge funds vs. short-term hedge funds.
  
• Ensure your activities are that of an accredited investor (with a net worth of more than $1 million).
  
• Involve financial advisor in the process of investing in hedge funds in India.
  
• Maintain direct communication with hedge fund manager.
  
• Check if diverse hedge fund strategies and techniques are put to use.
  
• Receive and file monthly or quarterly updates.
  
• Engage in data mining, keep track of trends.
  
• Check with accountant with regard to tax reporting and implications.
  
• Know your rights, where to seek help in terms of a dissatisfied hedge fund investment operation, or any other complaint in general that doesn't confirm with regulations.