Sebi on Wednesday approved measures to strengthen the framework for Alternative Investment Funds (AIFs), including having an independent valuation of their investments and introducing a comprehensive certification requirement for key investment teams of AIF managers.
To improve governance and transparency to investors with respect to transactions involving conflict of interest, the regulator also approved that there should be a mandate for obtaining approval of 75 per cent of investors by value for buying or selling of investments potentially involving conflict of interest.
The proposals pertaining to valuation of investments, dematerialisation of units, certification requirement for key employees of investment manager, transactions with associates and option to sell unliquidated investments to a new scheme of AIFs were approved by the Sebi's board on Wednesday.
There will be norms in place for AIFs to carry out valuation of their investment portfolio and the eligibility criteria of the independent valuer for valuing the investment portfolio.
Among others, Sebi said the valuation of investment portfolio of Category III AIFs in unlisted securities and listed debt securities should be carried out by an independent valuer.
All new schemes going forward and existing schemes of AIFs with corpus more than Rs 500 crore should dematerialise their units by October 31, 2023.
Existing schemes of AIFs with corpus less than Rs 500 crore should dematerialise their units by April 30, 2024, according to a release.
Sebi has also decided to replace existing minimum experience requirement as an eligibility criterion for the key investment team of the manager of an AIF with a comprehensive certification requirement.
"The said certification requirement is also being mandated for the compliance officer of the AIF."
In order to provide flexibility to AIFs to deal with investments which are not sold due to lack of liquidity during the winding up process, Sebi board has cleared a proposal to allow AIFs to either sell such investments to a new scheme of the same AIF, subject to certain conditions.
"In the absence of investor consent for aforesaid options during liquidation period, the unliquidated investments shall be mandatorily distributed in-specie to investors.
"In case an investor is not willing to take in-specie distribution, such investment shall be written off," the release said.