Guest post: Limited Liability Partnerships in India
This is a guest post by Varun Khandelwal:
India may introduce the Limited Liability Partnership (LLP) in
2009. LLPs function exactly like partnerships except that the
liability of the partners in an LLP is limited to the contribution
of the partner. A discussion on the LLP bill can be found
here and the actual bill
can be found on the
Ministry of Company Affairs'
Wesite.
What I find very interseting is the implications the LLP bill will have for the portfolio management/hedge fund industry. Currently, portfolio managers in India are regulated by SEBI and face numerous restrictions/regulations on their strategies and operations. Some regulations are resonable and protect the investors while some are completely bizzare (take for example the regulation touting a ban on pooled accounts).
The question is - will SEBI object outright to the use of LLPs as a vehicle to pool and channel private investments? If not, then the LLP opens a whole new world of opportunities for HNI investors and hedge fund managers interested in leverage, shorting the market, convertible arbitrage, long-short strategiesand other unconventional investment strategies.
Presently, the only way an investor can gain access to strategies other than buy-and-hold are through research analysts at brokerage houses. However, there is an obvious conflict of interst present there which is removed in the case of an asset manager who's revenue depends on client profits (and not on portfolio churning).
LLPs will allow asset managers to start offering sophisticated portfolio strategies to individuals/corportates/
SEBI's role should be similar to the Financial Services Authority, UK, or the Securities Exchange Commission (SEC), USA, which prohibit hedge funds from marketing their services to the general public. SEBI spread awareness to investors of the risks and that hedge funds running as LLPs are not restricted in their investment practices by SEBI. Invetors who want to take the additional risk should be allowed to take it.
What I find very interseting is the implications the LLP bill will have for the portfolio management/hedge fund industry. Currently, portfolio managers in India are regulated by SEBI and face numerous restrictions/regulations on their strategies and operations. Some regulations are resonable and protect the investors while some are completely bizzare (take for example the regulation touting a ban on pooled accounts).
The question is - will SEBI object outright to the use of LLPs as a vehicle to pool and channel private investments? If not, then the LLP opens a whole new world of opportunities for HNI investors and hedge fund managers interested in leverage, shorting the market, convertible arbitrage, long-short strategiesand other unconventional investment strategies.
Presently, the only way an investor can gain access to strategies other than buy-and-hold are through research analysts at brokerage houses. However, there is an obvious conflict of interst present there which is removed in the case of an asset manager who's revenue depends on client profits (and not on portfolio churning).
LLPs will allow asset managers to start offering sophisticated portfolio strategies to individuals/corportates/
SEBI's role should be similar to the Financial Services Authority, UK, or the Securities Exchange Commission (SEC), USA, which prohibit hedge funds from marketing their services to the general public. SEBI spread awareness to investors of the risks and that hedge funds running as LLPs are not restricted in their investment practices by SEBI. Invetors who want to take the additional risk should be allowed to take it.
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