The Securities and Exchange Board of India (SEBI) has put forth a proposal to ease norms, providing alternate investment firms (AIFs) and venture capital funds (VCFs) with more flexibility in handling unliquidated investments beyond their scheme tenure. The move is part of SEBI’s ongoing efforts to streamline regulations and address concerns raised by stakeholders in the AIF industry.
In a recently released consultation paper, SEBI suggests allowing AIFs a dissolution period after the conclusion of their scheme’s tenure to manage unliquidated investments, eliminating the mandatory launch of a liquidation scheme for this purpose. Additionally, the paper proposes a one-time flexibility extension for AIF schemes whose liquidation periods have expired to address unliquidated investments.
This proposal follows amendments made by SEBI in the AIF Regulations earlier, granting flexibility to funds dealing with investments of original schemes that remain unsold due to liquidity challenges during the winding-up process. The options provided included selling such investments to a new scheme within the same AIF, known as the Liquidation Scheme, or distributing unliquidated investments in-specie to investors.
Presently, the option to initiate a liquidation scheme is available only to AIF schemes already in the liquidation period, which spans one year following the tenure or extended tenure expiry for fully liquidating the scheme.
SEBI acknowledges representations from AIF industry stakeholders, prompting the release of the discussion paper to address the highlighted concerns. However, the regulator emphasizes that the flexibility offered should not become a means to delay the accurate recognition, disclosure, and performance assessment of asset quality and liquidity by AIFs and their managers.
The consultation paper also suggests extending the flexibility of the dissolution period to VCFs through migration to the AIF regime. SEBI proposes providing VCFs with a similar liquidation period of 12 months to align with AIF Regulations for liquidating their investments.
SEBI has invited comments and suggestions on the draft paper until February 2, 2024, signaling a collaborative approach to regulatory changes.
It’s noteworthy that SEBI has been actively revising AIF and VCF norms, such as the recent directive requiring AIFs with a corpus of INR 500 Crores and above to dematerialize their units by October 31, 2023. Additionally, SEBI revamped the quarterly reporting format for AIFs last year to enhance compliance efficiency.
