SEBI considering proposal to allow AIFs to extend tenure of schemes
2 min read . Updated: 03 Feb 2023, 09:22 PM IST
Premium- AIFs are like privately pooled investment vehicles that collect funds from sophisticated investors
Securities and Exchange Board of India (SEBI) has released a consultation paper inviting suggestions on a proposal to provide Alternative Investment Funds (AIFs) and their investors the option to carry forward unliquidated investments of a scheme on expiry of its tenure.
AIFs are like privately pooled investment vehicles that collect funds from sophisticated investors. These are governed by SEBI regulations and are classified as category - I, II, or III funds. Venture capital funds, private equity funds, real estate funds and hedge funds are all types of AIFs.
Currently, AIFs can extend the tenure of a scheme by up to two years with approval of two-thirds of the investors based on the value of their investment in the AIF. Further, AIFs have the option to distribute the assets of the AIF in-specie after obtaining approval of at least 75% of the investors by value of their investment in the AIF. In-specie transfer entails transferring the underlying securities itself to the investors as an alternative to selling them and transferring the cash to them.
Data collected by SEBI reveals that the 2-year extension for 24 AIF schemes with a valuation of Rs. 3,037 crores will expire in FY 2023-24, and that of another 43 schemes with a valuation of Rs. 13,450 crores will expire in FY 2024-25. It is in this context that SEBI is considering the option of further extension. As per the release, the regulator has received requests from a few AIFs on extension of scheme tenure due to lack of liquidity, legal and regulatory impediments, etc.
As per the proposal, at the end of tenure of a scheme beyond two years, the AIF may close the existing scheme and transfer the unliquidated investments to a new scheme with the consent of 75% of investors by value. Transfer to a new scheme will imply that securities will continue to be managed by the AIF manager instead of being transferred to the investors (under in-specie transfer). But this will be subject to meeting certain conditions including the following. To establish a reliable market price and closing valuation, the AIF will have to arrange bids for a minimum of 25% of the unliquidated investments to provide exits to the investors who do not wish to continue in the new scheme. The valuation to be carried out by two independent valuation agencies will have to be disclosed to all investors. If the minimum 25% bid is obtained from related parties or from other existing investors, this will have to be disclosed to all investors.
Finally, in case the consent of 75% of investors by value is not received either for in-specie distribution or for transfer to a new scheme, the manager shall mandatorily liquidate the investments at liquidation value within a year of expiry.
