SEBI’s Amendments to AIF Regulations
In line with amendments approved in SEBI’s Board meeting held on March 29, 2023, SEBI has issued SEBI (AIF) (Second Amendment) Regulations, 2023 on June 15, 2023 to further amend the AIF Regulations, 2012.
The following is a summary of the key new amendments-
Minimum experience requirement of key personnel
At least 1 key personnel is required to have minimum 5 years of experience in advising or managing pools of capital or in fund or asset or wealth or portfolio management or in the business of buying, selling and dealing of securities or other financial assets.
The existing minimum experience requirement has been replaced with a comprehensive certification requirement - at least 1 key personnel is required to have relevant certification as may be specified by the Board from time to time.
A fresh certification shall be obtained before expiry of the validity of the existing certification to ensure continuity in compliance with the certification requirement.
Dematerialisation of units
Units of AIF shall be issued in dematerialised form subject to the conditions specified by SEBI from time to time.
SEBI has, in a Circular released on June 21, 2023, mentioned that existing schemes of AIFs with corpus more than INR 500 crore will dematerialise their units by October 31, 2023 and schemes with corpus less than INR 500 crore will dematerialise their units by April 30, 2024. AIFs with corpus more than INR 500 crore can issue units only in dematerialised form from November 01, 2023. AIFs with corpus less than INR 500 crore can issue units only in dematerialised form from May 01, 2024. The aforesaid requirement is not applicable for schemes whose tenure (excluding permissible extensions) ends on or before April 30, 2024.
Buying or selling of investments involving conflict of interest
At present, the requirement for investors’ approval is only in instances where AIF invests in associates or another scheme of the same manager.
Approval of 75% of the investors by value of their investment in the scheme of AIF shall be required to buy or sell investments, from or to -
(a) associates; or
(b) schemes of AIFs managed or sponsored by its Manager, Sponsor or associates of its Manager or Sponsor; or
(c) an investor who has committed to invest at least 50% of the corpus of the scheme of AIF.
Appointment of compliance officer
The Manager shall appoint a Compliance Officer who shall be responsible for monitoring compliance with the provisions of the SEBI rules and regulations, and who shall also satisfy the eligibility criteria as may be specified by SEBI from time to time.
The Compliance Officer shall immediately and independently report to the Board any non-compliance observed by him, as soon as possible but not later than 7 working days from the date of observing such non-compliance.
Valuation and appointment of independent valuer
At present, only Category I and II AIFs are required to appoint an independent valuer. The AIFs are required to provide to its investors, a description of its valuation procedure and of the methodology for valuing assets.
It shall be the responsibility of the Manager to ensure that the AIFs shall appoint an independent valuer and shall ensure that the valuation of its investments is carried out in the manner specified by SEBI from time to time and provide to its investors, a description of its valuation procedure and of the methodology for valuing assets.
Category III AIFs shall undertake valuation of their investment in unlisted securities and listed debt securities by an independent valuer.
The Manager shall be responsible for true and fair valuation of the investments of the scheme of the AIFs.
In case the established policies and procedures of valuation do not result in fair and appropriate valuation, the Manager shall deviate from the established policies and procedures in order to value the assets or securities at a fair value and document the rationale for such deviation.
Such deviation and its rationale shall be reported to the trustee or the trustee company or the Board of Directors or designated partners of the AIF and investors of the AIF.
Distribution of unliquidated investments
At present, AIFs can make in-specie distribution to its investors, if required, during the liquidation stage, after obtaining approval of at least 75% of the investors by value of their investment in the AIF.
An AIF may distribute investments of a scheme which are not sold due to lack of liquidity, in-specie to the investors or sell such investments to a liquidation scheme, after obtaining approval of at least 75% of the investors by value of their investment in the scheme of the AIF, in the manner and subject to conditions specified by SEBI from time to time.
Liquidation Scheme means a close ended scheme launched by an AIF only for the purpose of liquidating the unliquidated investments purchased from its scheme, whose tenure has expired. The tenure of liquidation scheme of the AIF shall be determined at the time of filing of placement memorandum with SEBI and shall not be extended. The liquidation scheme of the AIF shall not accept any fresh commitment from any investor and shall not make any new investment.