Sebi proposes changes in IPEV capital valuation guidelines for AIFs

The Securities and Exchange Board of India (Sebi) plans to apply International Private Equity and Venture Capital Valuation Guidelines (IPEV) for the unlisted securities held by Alternative Investment Funds (AIFs).

In June 2023, Sebi had issued the circular mandating the valuation of assets held by AIFs.

The AIF industry had requested the change to address the differences in the valuation norms under mutual fund (MF) regulations and AIF regulations, as the former mostly applies to listed securities.

Last year, the AIF industry body Indian Venture and Alternate Capital Association (IVCA) endorsed IPEV guidelines for the valuation of the unlisted companies in their schemes and portfolio. As AIFs invest in startups and early-stage companies, the change was needed to address valuation gaps.

Further, the market regulator has proposed to allow an additional month to AIFs to provide audited data on cash flows and the valuation of their scheme-wise investments and portfolio companies.

As per current guidelines, they were required to provide the data to performance benchmarking agencies within six months of the end of the financial year.

AIFs had sent feedback to Sebi on the challenges as investee companies have a timeline till September 30 for completing their audit based on the financial year data. Thus, AIFs would require additional time to undertake the valuation of their portfolio based on these figures. Sebi has proposed to allow time till October 31 for AIFs to provide the valuation report each year.

In the consultation paper floated on Thursday, Sebi has also suggested removing other requirements like the classification of change in methodology as a material change for the scheme.