Alternative investment fund managers (AIFM) should have a paid-up capital of at least Rs20 million, and an alternative investment fund (AIF) should have an investment portfolio worth a combined Rs150 million, according to a draft of the AIF regulation being prepared by the Securities Board of Nepal (Sebon).

An AIF is an entity which raises funds from a number of investors to invest them as per a defined investment policy. Each AIF must have a manager. Several AIFs are operating in the local market. Currently, AIFMs are registered at the Office of the Company Registrar. However, the country lacks related laws to regulate such investments.

According to the proposed regulation, AIFs can invest in sectors such as energy, infrastructure, tourism, agriculture, cottage and small industries, services and information technology.

An AIF that is granted a licence for a particular area cannot alter its investment portfolio without taking prior permission from Sebon.

The regulation envisages allowing a maximum of 200 investors in an AIF. A unit holder should have a minimum investment of Rs2.5 million. Likewise, AIFs will be permitted to invest up to 25 percent of their funds in foreign stock markets after obtaining government approval.

Speaking at an interaction on Thursday, Sebon Chairman Rewat Bahadur Karki said the new regulations aimed to streamline all AIFs including the Employees Provident Fund. “The regulation will also help to add market instruments besides mobilising the collective capital in the country,” Karki said.

Sebon Executive Director Niraj Giri said the regulations would enforce a one-window policy for collective investment. “The AIF regulations will incorporate all venture capital and private equity funds being operated in the country,” said Giri, adding that the regulation would not address hedge funds.

Participants criticised the proposed regulation with regard to the management service fee for the fund manager. The regulation has proposed allowing the fund manager to take up to 2 percent of the net asset of the fund as service charge.

Radha Pokharel, president of the Capital Market Investors’ Association, urged Sebon to develop the Employees Provident Fund and Citizen Investment Trust as market makers instead of bringing them under the AIF regulation.