SEBI directs AIFs to the closing assets and liabilities of each plan

The market regulator, SEBI, has required that the assets and liabilities of each scheme of an alternative investment fund (AIF) be segregated and isolated from other schemes within the fund.

Each system’s bank and securities accounts must also be separate and isolated, SEBI said in its latest amendment to the AIF Rules.

SEBI’s latest move is music to the ears of the private equity and venture capital industry, as it will allow AIF managers to launch multiple programs and get to market faster.

A long-standing issue is now resolved. SEBI has now mandated the separation of AIF regimes along the same lines as already mandated for mutual funds.

Until now, where a single body has been held liable, the question has been whether the assets of other bodies in an alternative fund could be used to discharge this liability. This ambiguity had created friction for investors and AIF managers.

Related stories
New promotion policy at SEBI worries senior officials

Siddarth Pai, founding partner of 3one4 Capital and co-chair of the IVCA’s regulatory affairs committee, said the new notification now stipulates that an AIF’s plan assets and liabilities must be isolated and separated, allowing managers to ‘AIF to launch more programs and get to market faster. The industry welcomes this clarity and looks forward to any further operational guidance that will clarify the amendment, Pai added.

He said the recent SEBI amendment gave regulatory cover to a long-standing practice of Indian AIFs and their programs.

Indian AIFs are allowed to launch multiple programs as per AIF regulations. However, ambiguity existed due to the lack of language in the regulations that each scheme was isolated and separate from each other.

Thus, in the event that a single arrangement of an AIF would face a liability, the question was whether the assets of the other arrangements of the AIF could be used to discharge that liability.

Related stories
Social media ‘fin-fluencers’ on SEBI’s radar

Will need to register with regulator soon, says full-time member SK Mohanty

This ambiguity has created friction for investors and AIF managers, causing many AIF managers to launch new AIFs, instead of launching new programs under the same AIF.

This has increased compliance complexity and costs for AIF managers, Pai said.

Subramaniam Krishnan, Partner-Private Equity Tax, Ernst & Young LLP, said the industry is demanding an explicit provision that an AIF’s regulatory separate regimes should be construed as segregated investment vehicles where assets and liabilities of one plan cannot benefit/impact another. scheme or its investors.

“This has been essential for international investors and has enabled AIFs to raise substantial foreign capital to create new AIFs instead of launching multiple programs. With the latest SEBI amendment, it would be interesting to see if it provides enough comfort for international investors,” he added.

Related stories
Illiquid option: SEBI settlement plan ends in five days, amid strong backlash

More than 7,000 entities pay under SEBI’s settlement program for illiquid stock option “reverse trades”

First closing

Meanwhile, SEBI has now amended the AIF Rules to introduce a timeline for the first closing of an AIF program, which must now be reported within one year of program registration. This has also been extended to existing schemes, which have yet to declare their first closure.

“While this amendment will provide clarity and consistency, given the challenges that AIFs typically face in closing commitments (including macro-level market changes, anchor investor delays, core commitments required by investors of the Indian Fund of funds, postponement of the launch to get the critical mass of commitments, pre-launch due diligence, etc.), this could have an impact on the industry, especially the rookie fund managers, who have yet to establish themselves in the market,” Krishnan said.