SEBI Considers Extending Near-End AIFs Lifecycle To 14 Years

The Securities and Exchange Board of India (SEBI) is reportedly considering extending the lifecycle of near-end Alternative Investment Funds (AIFs) for two more years. Until now, SEBI only granted extensions on a case-to-case basis. The current extension marks a relief for all AIFs who are nearing their end.

According to reports quoting sources, the move comes when several private equity and venture capital funds have found it challenging to offload unlisted investments with liquidity conditions tightening and bearish market conditions.

Notably, the current rule states that AIFs can have a fund life of 3-10 years. The 10-year term can further grow by another two years if the AIF obtains investors’ consent. As SEBI looks to add another two years to this, AIFs may have a total fund life of 14 years, subject to certain conditions. 

The move will affect Category I and Category II AIFs that invest in unlisted companies.

Another point that SEBI is looking at is introducing higher investor consent thresholds for extending fund life. That means, for extending the first two years of AIF’s lifecycle, over 66% of the investors will have to agree, for the third year, 75% and for the fourth, 90% of the AIF investors will have to agree.

SEBI is likely to provide an SOP for the extension in a few weeks.

Govt Focusses On Ease Of Doing Investment Business

The possibility of the extension comes at a time when several new regulations have come into force in the past few months. 

Only this week, RBI issued a regulation for family offices, Indian conglomerates and tech startups, opting for the overseas direct investment route (ODI) into foreign startups. Round-tripping structures for Indian investors have also been simplified for foreign startups with less than two levels of subsidiaries.

To simplify foreign investments, SEBI also recently removed the clause that an investee company needs to have an Indian connection. Now, AIFs can invest in securities of companies incorporated outside India, as VCs can conditionally invest in off-shore venture capital companies.

Last year, SEBI also doubled the ceiling of investors to $1.5 Bn to reinvest their sales proceeds in foreign companies (up from $750 Mn until 2021). The market regulator is also reportedly discussing with the RBI to double the limit to $3 Bn.