According to two people with direct knowledge of the matter, Sebi has found prima facie evidence that Invesco Asset Management India has executed trades on behalf of offshore funds in violation of norms governing mutual funds in India.
Mumbai: According to two people with direct knowledge of the matter, the markets regulator has seen prima facie evidence that Invesco Asset Management India Pvt. Ltd has performed trades on behalf of offshore funds in violation of norms governing mutual funds in India.
Mutual funds are prohibited by the Securities and Exchange Board of India (Sebi) from doing business with overseas funds other than providing advisory services. The guidelines also say that local and offshore enterprises must keep separate finances, people, and operations.
“In Invesco’s example, the local mutual fund team conducted trades on behalf of offshore funds” (focusing on Indian debt). This disobeys Sebi mutual fund regulations 24 (B),” one of the two sources listed above stated, speaking on the condition of anonymity.
“This is where the Chinese wall was penetrated in terms of trade execution.” The functions of a portfolio management service (PMS) and a domestic mutual fund must be maintained distinct at all times. “The infringement has also been confirmed by an independent inquiry commissioned by the fund house,” added the second person, who also requested anonymity.
On Monday, emails were addressed to an Invesco spokeswoman in India, and further reminders on Tuesday went unanswered. Emails submitted to a Sebi spokeswoman went unanswered as well.
Asset managers use the PMS to manage their offshore funds.
The flaws were discovered after a whistleblower accused Invesco Asset Management India of mismanaging fixed income programs between 2018 and 2019. The complainant claimed that Invesco MF’s fixed income team recognized specific debt documents, such as Dewan Housing Finance Ltd, that would be put under pressure following the default of infrastructure financier IL&FS. The exposure was subsequently transferred to the team’s offshore funds.
“The overall value of such deals exceeds 200 crores,” the first person stated.
Transferring securities from one scheme to another is known as inter-scheme transfer, and it was a reasonably common activity until 2020. However, the regulator prohibited such transactions beginning in January 2021 because they merely moved risk from one fund to another without investors’ awareness.
“In July 2021, the whistleblower filed a complaint with Invesco management, its US parent, Sebi, the US Securities Exchange Commission (SEC), and the Securities and Futures Commission (SFC, Hong Kong’s markets regulator).” Following this, Sebi launched an investigation into the minutes of investment committee meetings about its debt programs from 2017 to 2020. Invesco launched an independent inquiry into the accusations,” the second individual stated.
“Even SFC has issued inquiries to Invesco,” this individual stated.
According to the first person, both Invesco’s independent investigation and Sebi concluded that mutual fund norms were violated by failing to keep domestic and PMS operations separate.
“Sebi is expected to issue a notice to the fund for breaking the rules and failing in its fiduciary duties,” this individual stated.
Invesco has maintained in its defense that there has been no damage to investors and that violations of the separation of PMS and domestic activities are reasonably common in the sector.
“Invesco’s PMS activities oversee around 9,000 crores. So a 200-crore exposure is not a big deal. Furthermore, no harm has been done to domestic investors,” according to a person familiar with Invesco’s views. In a previous statement, Invesco stated that it strives to maintain excellent relations with authorities and assist with regulatory inquiries, such as examinations or investigations.
The authored article is written by Darshana Joshi and shared with Prittle Prattle News exclusively.