The insurance
regulator has opened the doors for life companies to invest in venture
capital funds - a move that is likely to result in VC funds making a beeline for
the Life Insurance Corporation of India which will have a headroom of close to
Rs 30,000 crore to invest in such funds.
Until now life insurers
were allowed to invest in VC funds but it was subject to the condition that the
investment would be predominantly in infrastructure . Insurers say that this
will create new investment opportunities for them. "This is a positive move as
it opens up new avenues for investments.
Although for most private
companies the size of the traditional portfolio is relatively small, it is
growing steadily and should be sizeable going ahead" said Puneet Nanda, ED,
ICICI Prudential Life Insurance. In a circular , IRDA said it had received a lot
of queries from insurers on whether their investment were restricted only to
infrastructure .
"The IRDA after inviting coments and concerns of
insures clarifies that ...insurers may invest in any venture fund registered
under Sebi Regulaion, which includes VC funds investing in small and medium
enterprises," the circular said. IRDA has however barred insurers from investing
in funds promoted within the group or by an investment manager, who is
indirectly controlled or managed by the insurer or promoters. Insurers also say
that this will give companies to participate in promising business at an early
stage.
"Today most private companies go for a round of private equity or
venture capital funding before they get listed. By the time they go for a
listing, it is at a significant premium," said the investment head of a private
life company. Incidentally , all Sebi regulated private equity funds are
registered as venture capital funds. While IRDA has widened the scope of venture
funds, it has retained the investment limits. Overall investment in VC funds
will continue to be a part of the 'other investments' of a life company, which
stands capped at 15% of the life fund. The maximum that a life company can
invest in a venture fund would be 3% of the life fund size.
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