Sebi mulls tenure extension for AIFs to continue unliquidated investments

Pooled investment vehicles may be allowed to carry forward unliquidated investments to a fresh scheme at the end of tenure

The Securities and Exchange Board of India (Sebi) has proposed to allow alternate investment funds (AIFs)—pooled investment vehicles used by the wealthy—to carry forward the unliquidated investments of a scheme beyond their tenure period.

At present, AIFs can extend the tenure of the scheme by two years upon approval from two-third investors. After expiration of the tenure, the AIF has to fully liquidate the scheme within one year.

In a consultation paper floated on Friday, Sebi has proposed that AIFs and Large Value Funds for Accredited Investors (LVFs) be permitted to close the existing scheme and transfer the unliquidated investments to a new scheme on receiving consent from 75 per cent investors by value.

This option will be provided beyond the present two-year extension at the end of tenure of the scheme.

“With a view to establish a reliable market price and closing valuation, the AIF/manager must arrange bids for a minimum of 25 per cent of the unliquidated investments to provide exits to the investors who do not wish to continue in the new scheme,” Sebi said in a consultation paper.

The fund managers must offer a pro-rata exit to all investors who choose to redeem, it further said.

The Alternative Investment Policy Advisory Committee (AIPAC) has also recommended that the value at which the exit is proposed along with valuation carried out by two independent agencies will have to be disclosed to all investors.

“There is a clear regulatory and financial stability objective of ensuring proper recognition and disclosure of true asset quality, liquidity, and fund performance by AIFs/Managers. Repeated extensions should  not become a means to delay such recognition,” said Sebi rationalizing the need for checks on valuations.

In case the minimum bids are not received then the valuation of the scheme will be determined under IBBI (Insolvency Resolution Process for Corporate Persons) Regulation or IBC regulations.

The unliquidated investments will be transferred to a new scheme at the closing price of the original scheme. For this new scheme, fresh investors will be informed that it holds unliquidated assets.

Further, if no new investors are being added to this new scheme, then there will be relaxation on certain regulations of minimum corpus and minimum subscription amount.

Sebi data shows that the two-year extension period for 24 schemes of AIFs with a valuation of Rs 3,037 crore is going to expire in FY 2023-24 while the tenure of another 43 schemes with a valuation of Rs 13,450 crore will expire in FY 2024-25.

Of late, the capital market regulator has received requests from AIFs for extension of the tenure citing reasons such as lack of liquidity, legal or regulatory impediments.

Under the proposed norms, a fund manager’s performance will be computed on the basis of exit or liquidation value provided to the investors. This data will also be included in the track record of the manager for subsequent schemes.

Public comments have been sought by the regulator till February 18.