Investors will benefit from a standard technique for evaluating Alternate Investment Funds (AIFs) and liquidation scheme processes that was announced on Thursday by the market regulator Sebi. Sebi mandated that all AIF schemes be issued in demat form in three circulars.
Existing AIFs with a capital of above Rs 500 crore as well as any future AIFs must dematerialize their units and issue them in demat form by October 31, 2023. By April 30, 2020, AIFs with a corpus under Rs 500 crore must dematerialize their units.
According to Sebi, the harmonised approach would evaluate security portfolios using AIF industry group criteria.
The current AIF Regulations focus on investor disclosures rather than technique.
According to Sebi, the management must outline in a private placement memorandum (PPM) the valuation methodology and approach used in accordance with the AIF scheme’s specified requirements for each asset class.
The AIF manager is responsible for ensuring that an impartial valuer computes and values the investments in the AIF scheme in compliance with Sebi regulations.
AIF managers are required to alert investors about differences of above 20% between values or 33% over the course of a financial year. Investors must also be informed of variations.
AIF managers must make sure portfolio companies adhere to the terms of the investment agreement and provide their audited financial statements on time. They must reveal the worth of the portfolio firm to performance benchmarking agencies after examining its financial records.
According to Sebi, AIF must employ a qualified independent valuer with at least three years of experience evaluating unlisted securities who is registered with the Insolvency and Bankruptcy Board of India (IBBI).
A valuer who works independently must belong to ICAI, ICSI, or ICA.
Additionally, managers must make sure that a deadline for submitting audited financial statements to the AIF is included in the subscription agreement with the investee company.
Within six months, the AIF manager may provide performance benchmarking organisations with value based on audited data as of March 31.
According to Sebi, AIFs may distribute specific unliquidated assets or transfer them from one plan to another with the consent of 75% of investors by value.
Unliquidated investments will be assigned specifically if investors don’t approve. If investors reject in-specie payout, AIFs are required to write down the investments.
The manager, trustee, and senior management of AIF will oversee and enforce the liquidation process.
According to Sebi, the framework for valuing investment portfolios will go into effect on November 1 whereas the framework for liquidations is applicable right away.
