SEBI amends alternative investment fund regulations to bolster investor protection

SEBI's board mandated that all new schemes going forward, as well as existing schemes of AIFs with a corpus of more than Rs 500 crore, must dematerialise their units by October 31, 2023. Existing schemes with a corpus of less than Rs 500 crore will dematerialise their units by April 30, 2024, the regulator said.

In a report published after the board meeting, it was stated that a proposal was approved to replace the existing minimum experience requirement as an eligibility criterion for the key investment team of AIF manager with a comprehensive certification requirement, in a bid to facilitate skill-based approvals and ensure objectivity in ascertaining eligibility for the registration of AIFs.

The certification requirement is also being mandated for the compliance officer of the AIF, the regulator said.

"To improve governance and transparency to investors with respect to transactions involving conflict of interest, the Board approved a proposal to mandate obtaining approval of 75 percent of investors by value for buying or selling of investments potentially involving conflict of interest," the report read.

This provision would cover transactions by an AIF from or to its associates, or schemes managed or sponsored by the manager, their associates, or an investor who has commitment of more than 50 percent of the corpus of the scheme.

Further, the SEBI board also approved a proposal to allow AIFs to either sell unliquidated investments to a new scheme of the same AIF, or distribute them subject to approval of 75 percent investors by value. In the absence of investor consent, 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 report read.

"To ensure proper recognition and disclosure of true asset quality, liquidity, and fund performance of AIFs and their managers, the value of sale of such investments to the Liquidation Scheme or their in-specie distribution shall be recognised as per norms specified by SEBI for capturing in the track record of the manager and for reporting to Performance Benchmarking Agencies," the report further read.