SECP proposes reforms in private funds industry

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has released a diagnostic review of Pakistan’s private funds (PF) industry, providing a synopsis and recommendations for key fiscal and regulatory reforms required for a vibrant PF industry that could spur economic activity, catalyse job creation, and increase government revenues, it said on Wednesday.

The report provides an overall assessment of the country’s PF sector, which collectively refer to both private equity and venture capital Funds (PE&VC Funds) and alternative funds.

To enable a vibrant and galvanised PF sector, the report also provides policy recommendations for a multifaceted reform agenda.

Apart from properly defining private funds in the tax laws and enabling all private fund categories to avail pass-through status and capital gains tax exemptions, the report provides some basic steps that could augment the investor pool and unify government initiatives for the sector.

The report states the total size of private equity and venture capital funds as on June 30, 2022 reached Rs10.99 billion as compared to Rs6.69 billion on June 30, 2021, registering a year on year growth of 64 percent. However, the number of PE&VC funds remained the same at five.

On the operational side, the study answers pertinent questions enabling launch of private funds in the alternate legal structure of limited liability partnership as compared to long prevailing trust structure. It also recommends a relook into the role of trustee and custodian, considering that the funds target only sophisticated investors and institutions.

The SECP chairman Aamir Khan, in his statement attached to the report, said considering more than 60 percent of population comprises of youth in Pakistan and to encourage innovation and knowledge-based ideas into commercial production, the potential of PF industry needs to be practically tapped and fully explored.

SECP said the diagnostic review report was an outcome of extensive consultations with private fund management companies, key players of the start-up space and a diverse set of both public and private stakeholders.