Markets watchdog Sebi on Thursday came out with guidelines for compulsory performance benchmarking for Alternative Investment Funds (AIFs) as part of efforts to streamline disclosure standards.
A template for Private Placement Memorandum (PPM) in the case of these funds, which have been classified into three categories, has also been issued.
The PPM would have two parts -- a section for minimum disclosures and a supplementary section to provide any additional information.
In a circular, the regulator said it has been decided to introduce the template for PPM, subject to certain exemptions, as well as put in place mandatory performance benchmarking for AIFs. Besides, there are provisions for additional customised performance reporting requirements.
Sebi has also given operational guidelines for mandatory performance benchmarking of AIFs, including venture capital funds and the AIF industry.
The performance benchmarking guidelines "shall not apply to Angel Funds registered under sub-category of Venture Capital Fund under Category I-AIF," the circular said.
AIFs would have to carry out an annual audit of compliance with PPM terms. It can be done by either an internal or external auditor or a legal professional.
Sections in the PPM pertaining to risk factors, legal, regulatory and tax considerations, among others, would be optional when it comes to audit.
"Performance Benchmarking shall be done on a half-yearly basis based on the data as on September 30 and March 31 of each year," the regulator said.
The findings of the audit, along with corrective steps, if any, should be communicated to the trustee of board or designated partners of the AIF, board of the manager and Sebi.
These requirements would be effective from March 1.
Angel funds as well as AIFs or schemes in which each investor commits a minimum capital contribution of Rs 70 crore or USD 10 million would be exempted from complying with the requirement of PPM as well as audit.
Any association of AIFs that represents at least 51 per cent of the number of such funds, have to notify one or more benchmarking agencies, with whom each AIF needs to enter into an agreement for carrying out the benchmarking process.
AIFs, for all their schemes which have completed at least one year from the date of "first close", should report all the necessary information, including scheme-wise valuation and cash flow data, to the benchmarking agencies in a timely manner.
"If an applicant claims a track-record on the basis of India performance of funds incorporated overseas, it shall also provide the data of the investments of the said funds in Indian companies to the benchmarking agencies, when they seek registration as an AIF," Sebi said.
In any marketing or promotional material as well as PPM, where past performance of the AIF is mentioned, the performance versus benchmark report provided by the benchmarking agencies should be provided, as per the circular.
"As a first step, association will appoint benchmarking agencies and thereafter will set timeline for reporting of requisite data to benchmarking agencies by all the registered AIFs.
"In this regard, association and benchmarking agencies will ensure that the first industry benchmark and AIF level performance versus benchmark reports are available latest by July 1, 2020, for the performance up to September 30, 2019," Sebi said.
On a monthly basis, an association has to submit a progress report in this regard to Sebi till the creation of the first industry benchmark.
In December, the regulator proposed introduction of minimum benchmarks for disclosure of performance history of AIFs and standardisation of draft document issued to investors by them.
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