SEBI standardises provisions for valuation of Alternative Investment Funds

The market regulator also made changes in rules governing certification requirements for key employees of Investment Manager, transactions with associates, and option to sell unliquidated investments to a new scheme of the AIF.

The announcement on this was made by SEBI Chairperson Madhabi Puri Buch in a press conference along with key decisions related to ESG framework, mutual funds and shareholder empowerment.

Under the amendments the SEBI Board approved proposals to specify a framework for AIFs to carry out valuation of their investment portfolio. The new rules will also spell out eligibility criteria of the independent appraiser for valuing the investment portfolio of AIFs.

Under the new rules, valuation of investment portfolios of Category III AIFs in unlisted securities and listed debt securities will also be carried out by an independent valuer and responsibility will be cast on managers of AIFs for true and fair valuation.

For ease of monitoring and administration by stakeholders and for the purpose of investor protection against operational and fraud risk, the board approved mandating that all new schemes going forward and existing schemes of AIFs with corpus more than Rs 500 crore will dematerialise their units by October 31, 2023.

Existing schemes of AIFs with corpus less than Rs 500 crore shall dematerialise their units by April 30, 2024.The Board also approved a proposal to replace existing minimum experience requirement as an eligibility criterion for the key investment team of the Manager of the AIF with a comprehensive certification requirement. The certification requirement will also apply for the compliance officer of the AIF.

A proposal to mandate obtaining approval of 75% of investors by value, for buying or selling of investments potentially involving conflict of interest was approved. The provision would cover transactions by an AIF, from or to, associates of AIF, or schemes of AIFs managed or sponsored by the manager or sponsor or their associates, or an investor who has commitment to the extent of more than 50% of the corpus of the scheme of AIF.

To provide flexibility to AIFs to deal with investments which are not sold due to lack of liquidity during the winding up process, the Board approved a proposal to allow AIFs to either sell such investments to a new scheme of the same AIF (Liquidation Scheme) or distribute unliquidated investments in-specie, in the prescribed manner and subject to approval of 75% investors by value.

In the absence of investor consent during liquidation period, the unliquidated investments shall be mandatorily distributed in-specie to investors. In case an investor is not willing to take in-specie distribution, such investment shall be written off.

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