10-07-2020
Govt agencies look into allowing state run insurers to invest in funds-of-funds
Insurance AlertssGovt agencies look into allowing state run insurers to invest in funds-of-funds
State-run insurers and pension funds may get the nod to invest in government-backed startup-focused fund-of-funds, depending on the outcome of talks among various government agencies.
The agencies involved include the Department for Promotion of Industry and Internal Trade (DPIIT), and financial industry regulators including the IRDAI and Securities and Exchange Board of India (SEBI), reported The Economic Times.
The talks take place at a time when there is a pressing need to create large pools of domestic capital, given recent changes to India’s foreign direct investment rules which are anticipated to severely restrict Chinese funding into the country’s startup ecosystem.
“There is a critical need to replace that anticipated shortfall in capital. The government needs to get Indian investors to start investing…There is now a clarion call to start relying more on India’s domestic financial institutions, or domestic pools of capital, and ensure they participate in a significant manner,” a person with knowledge of the development said.
A government official told The Economic Times, “We have restarted talks with the IRDAI, and have asked them to figure out risk mitigation measures, and other possibilities.” “We can ask insurance firms to invest 1% of the overall premiums they receive from the public in a year, or 1% of the investment the public makes in provident funds over a 12-month period, and this may be then invested in AIFs (Alternative Investment Funds) that back startups,” the official added.
The bulk of investable assets of insurers are parked in government and state securities, approved categories of equity investments and in housing or infrastructure-based investments. The law allows a small portion of the investment in ‘other’ categories, including SEBI-approved AIFs.
However, current rules also clearly state that insurers are not allowed to invest in any fund-of-funds, foreign incorporated entities or have direct exposure in any unlisted company. As per two insurance industry sources, the sector regulator recently received representations from both general and life insurance companies to ease these norms so that they could invest in startups relevant to the broader insurance ecosystem.
Source: Asia Insurance Review
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