SEBI Proposes More Flexibility For AIF Co-Investment

SUMMARY

The regulatory body suggested scrapping of prohibition on investment managers of AIFs to provide advisory services in listed securities

Co-investment primarily allows the fund to focus beyond its own limitations of ticket size and portfolio management

The proposal would allow managers of AIFs to offer co-investment opportunities to investors of AIFs via CIV model with certain conditions

The Securities and Exchange Board of India (SEBI) has reportedly proposed allowing more flexibility for investors to co-invest with the alternative investment funds (AIFs).

A PTI report said that the regulatory body suggested scrapping of prohibition on investment managers of AIFs to provide advisory services in listed securities.

In simple terms, co-investment primarily allows the fund to focus beyond its own limitations of ticket size and portfolio management. Funds tend to offer co-investments in cases, where the investment is too large to fit in the fund or for maintaining control of an investment as well as building relationships with their LPs, who will be counted upon for future fundraising.

Further, AIF is a privately pooled investment vehicle that gathers funds from investors under a defined investment policy, which are infused as capital for the benefit of its investors.

It has been proposed to allow managers of AIFs to offer co-investment opportunities to investors of AIFs via co-investment vehicle (CIV) model with certain conditions, the report said.

It further added that a separate CIV scheme should be launched for each co-investment in the potential company eyed for investment under intimation to SEBI, aligning with the shelf PPM for the CIV scheme filed with the markets regulator.

So far, co-investors had to offload their shares at the same time as AIF on the same terms and exit price, reducing the investors’ freedom and leading the funds to look for relaxation to these rules.

The development comes after private equity and venture capital funds placed requests to relax co-investment norms within the AIF route from 2022.

Meanwhile, SEBI relaxed its mandates for AIFs in February, to hold their investments in dematerialised form, effective July.

This comes to light at the time of SEBI’s constant modifications in the framework of the AIF industry on the basis of feedback and challenges received.

Previously, the regulatory body modified its framework for valuing investment portfolios of AIFs in September last year, where it said securities, excluding unlisted, non-traded, or thinly-traded securities would be valued on the lines of existing mutual fund rules (SEBI (Mutual Funds) Regulations, 1996).