The Hindu : Business : `Hedge funds offer scope for tapping foreign capital'

Online edition of India's National Newspaper
Thursday, Aug 10, 2006

Business

Business

`Hedge funds offer scope for tapping foreign capital'

R. Gopalakrishnan

Opportunity for IT industry to serve global funds

CHENNAI: Hedge funds provide an opportunity for India to attract large amounts of foreign capital and this is particularly significant in the context of the very low level of foreign direct investment (FDI) in the country when compared to China, according to Marti Subrahmanyam, Charles E Merrill Professor of Finance and Economics at the Stern School of Business, New York University.

Prof. Subrahmanyam, who was here on Tuesday to address a seminar organised by the Confederation of Indian Industry (CII) on hedge funds, told The Hindu that there was very little chance that India would catch up with China in the matter of FDI. This was because in China foreign investors found quick action by national authorities on their needs, in contrast to the situation in India.

He said there was no reason why portfolio investment, including investment by hedge funds, would be withdrawn from India if the returns from the market were good.

(Hedge funds are pools of investment from pension funds, insurance companies, investment banks, University endowments, sovereign holdings and high net worth individuals and they are registered with but not regulated by capital market regulators, unlike foreign institutional investors or FIIs).

Earlier, in his interactions during the seminar, Prof. Subrahmanyam said the negative attitude of monetary authorities and other regulators towards hedge funds arose out of the "fear of the unknown" and they needed to be educated on the role played by hedge funds, which constitute the largest market for investment banks. No doubt there were certain negatives in the case of hedge funds like easier entry and exit and "huge contagion effect in emerging markets" which were "part of the game". "We cannot ban electricity just because it could involve certain hazards like shocks", he said. (Recently, a U.S. court rejected moves by the Securities and Exchange Commission to regulate hedge funds, and in India, such funds can participate in the capital market only through FIIs' access products like participatory notes).

The professor, who is also on the board of some Indian companies including Infosys Technologies, said almost $1.2 trillion was invested by hedge funds globally in the first quarter of 2006.

Big names in the industry like Bridgewater, GSAM, Citadel, SAC Capital, Renaissance, DE Shaw, Vega, Tudor had each $10 billion in their corpus.

Prof. Subrahmanyam said the information technology (IT) industry in India could tap a big opportunity by providing back office services to global hedge funds but this required people with in-depth domain knowledge.

Printer friendly page
Send this article to Friends by E-Mail

Business