Indian trade body to draft private equity guidelines

Standardising reporting and valuation methods are key drivers of the IVCA's move to adopt voluntary guidelines for the Indian private equity industry.

The India Venture Capital and Private Equity Association (IVCA) is in talks with its 80-some members to implement guidelines for private equity firms' investment in India. This is the first time such an initiative is being undertaken, with the aim to standardise the industry.

If you want to be a part of the industry association, you have to adhere to certain codes of ethics and be a signatory to these guidelines.

Ranjit Shastri

Establishing parameters for fund managers' reporting and valuation methods are the key components of the exercise, said Ranjit Shastri, the executive director of IVCA. Other guidelines with regards to corporate governance and the interaction between private equity funds and their portfolio companies are also being discussed, he said. 

Limited partners in India have different guidelines for reporting. As a result, fund managers need to prepare different sets of documents for each limited partner. Standardisation in terms of reporting will make fund managers’ task of reporting easier, Shastri said. “The LPs also benefit as they gets something that is standardised. Even if the LP cannot force the fund manager to give him exactly the information that it wants, standardisation helps everyone,” he added.

The IVCA also wants to introduce the concept of fair value in India. “We are doing this in consultation with LPs,” Shastri said.

The framing of these guidelines is still in its very early stages, but the response has been encouraging thus far, Shastri said.  “Of course not everyone feels the same about specific issues, but everyone wants to protect the reputation of the industry,” he added.

This is the right time to establish guidelines because the number of Indian private equity players is steadily growing, Shastri said.

The guidelines cannot be enforced and have nothing to do with the Indian government or the Securities and Exchange Board of India, he stressed.

“It comes down to whether a GP wants to be a part of the IVCA or not. If you want to be a part of the industry association, you have to adhere to certain codes of ethics and be a signatory to these guidelines,” Shastri added.

In February, the European Venture Capital and Private Equity Association (EVCA) recommended a code of conduct for private equity firms in Europe in response to political and public concerns pertaining to private equity. The areas covered by EVCA’s suggested regulations comprise of a code of conduct; corporate governance guidelines for portfolio company management; investor reporting; valuation guidelines; transparency and disclosure guidelines; and governing principles for the establishment and management of private equity funds.