SEBI Prescribes Standardised Approach to Valuation of Investment Portfolio of AIFs

SEBI, vide its circular dated June 21, 2023, has proposed that AIFs must adopt a standardized methodology for valuation of investment portfolios managed by them.

Through this circular, which will be effective from November 1, 2023, SEBI has specified that:

• the valuation of securities for which valuation norms have been prescribed under SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”) must be carried out as per MF Regulations;
• the valuation of securities for which no valuation norms have been prescribed under MF Regulations shall be carried out as per valuation guidelines endorsed by an AIF industry association, which in terms of membership must represent at least 33% of the number of SEBI registered AIFs; and
• the manager shall also disclose in PPM, the details (including any change and its impact) of the valuation methodology and approach adopted under the stipulated guidelines for each asset class of the scheme of AIF. Any change in the methodology and approach for valuation of investments of scheme of AIF shall be construed as material change significantly influencing the decisions of the investor to continue to be invested in the scheme of AIF and accordingly relevant procedure prescribed by SEBI must be adhered to.

This circular also provides the eligibility criteria for independent valuer and standards for reporting valuation of investments of AIF to performance benchmarking agencies.

To read the circular click here

For any clarification, please write to:

SEBI Provides Flexibility to AIFs to Deal With Illiquid Investments During the Winding-Up Process

SEBI, vide its circular dated June 21, 2023, has sought to provide flexibility to AIFs to deal with their scheme’s investments that remain unsold due to lack of liquidity during the winding-up process by either:

• selling such investments to a new scheme of the same AIF, specifically for liquidating the unliquidated investments of an original scheme that’s winding-up; or
• distributing such unliquidated investments in-specie.

Both of the above processes are subject to consent of 75% of investors by value of their investment in the original scheme. Pertinently, the circular also provides that it would be mandatory to do in-specie distribution of unliquidated investments if the AIF fails to obtain requisite investor consent for launch of liquidation scheme or in-specie distribution of unliquidated investments.

Further, the circular throws light on valuation norms for unliquidated investments, responsibilities of compliance and the process of writing-off such investments if requisite investor consent has not been obtained.

To read the circular click here

For any clarification, please write to:

SEBI Proposes Mandatory Dematerialisation of Units of AIFs

SEBI, vide its circular dated June 21, 2023, has mandated all schemes of AIFs (except for schemes whose tenure (excluding permissible extensions) ends on or before April 30, 2024) to issue or convert their units in dematerialised form subject to conditions specified by SEBI from time to time and in compliance with the below mentioned time frame:

Terms of transfer of units of AIF held in dematerialised form shall continue to be governed by the terms of private placement memorandum (“PPM”), agreements entered between the AIF and investors and any other fund documents.

The circular also directs depositories to take steps towards implementation of the provisions thereof.

To read the circular click here

SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2023 Notified By SEBI

SEBI, vide notification dated June 15, 2023, has notified the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2023 to further amend the SEBI (Alternative Investment Funds) Regulations, 2012.

Few of the key amendments are: (a) introduction of a new category of Alternative Investment Funds (“AIFs”) known as ‘Specified Alternative Investment Fund’; (b) requirement of issuing AIFs units in dematerialized form; (c) modifications in the winding-up process by introduction of liquidation scheme of AIF; (d) requirement for investor consent for buying/ selling investments from/to certain persons: approval of 75% of the investors to be obtained for buying or selling investments, from or to (i) associates, or (ii) schemes of AIFs managed or sponsored by its manager, sponsor or associates of its manager/sponsor, or (iii) an investor who has committed to invest at least 50% of the corpus of the scheme of AIF; (e) notification of a new Chapter III – C, introducing ‘Corporate Debt Market Development Fund’; (f) mandatory appointment of a compliance officer who shall be responsible for monitoring compliance and report any non-compliance to SEBI; and (g) modification to the valuation procedure and the methodology for valuing assets.

To read the notification click here