Mumbai, May 24: An internal group associated with the FII division of the Securities and Exchange Board of India (Sebi) has recommended a provision for a limited window to hedge funds.

In doing so, the group also stressed on applying additional checks to address the special concerns associated with the “creative” fund management strategies used by these entities.

The group estimated that hedge funds account for about 5 per cent of the market value of the total assets held by the FIIs in India.

Hedge funds are unregistered private investment partnerships, funds or pools that may invest and trade in different markets, strategies and instruments.

Sebi has proposed adequate safety measures to address legitimate concerns associated with these funds while existing FII regulations deal with the concerns related to currency speculations, short selling, scrip-wise concentration and excessive positions in cash and the derivative segment of the market.

Elaborating on the proposed regulatory norms, it said the investment adviser to hedge funds should be a regulated one under a relevant act or the fund should be registered under collective investment fund regulation or the investment companies act.

At least 20 per cent of the fund’s corpus should be contributed by investors such as pension funds, university funds, charitable trusts or societies, endowments, banks and insurance companies, it said.

The presence of institutional investors in a hedge fund was expected to ensure better governance on the part of the fund administrators and managers, Sebi added.

Further, institutional investors may help fund managers to take a long-term perspective of the market.