SEBI warns trustees of VC funds over investment lapses

The Securities & Exchange Board of India (SEBI) has issued show cause notices to IDBI Trusteeship Services and Vistra, two trustee companies, in connection with investment lapses by venture capital funds. Even though trustees do not have a role in the day-to-day functioning of alternative investment funds (AIFs), SEBI is expecting trustee companies to take a more active role in preventing violations, and mistakes by fund managers. The compliance lapse by the fund connected to IDBI Trustee is related to investment norms, while investors complained about not receiving an exit following a fund life extension under the VCF where Vistra was the trustee. The notices raise concerns among experts as they could lead to difficulties for third-party trustees to serve AIFs. SEBI has introduced a series of changes in AIF regulations over the past year, including a code of conduct for fund directors, managers, and intermediaries, rules on the closing of funds, and disclosure of investor grievances.