Updated January 15th, 2024 at 17:59 IST
SEBI proposes flexibility for AIFs and VCFs to manage unliquidated investments beyond tenure expiry
Presently, AIFs have the option to launch a liquidation scheme only during the 'Liquidation Period.'
SEBI new measures: The Securities and Exchange Board of India (SEBI) is considering measures to grant Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) greater flexibility in handling unliquidated investments beyond the expiration of their tenure. In a recent consultation paper, SEBI suggested allowing existing liquidation schemes of AIFs to continue with unliquidated investments for a specified period instead of initiating a new scheme. The proposal also recommends extending dissolution process flexibility to venture capital funds by enabling migration to the AIF regime.
Presently, AIFs have the option to launch a liquidation scheme only during the 'Liquidation Period,' which is the year following the scheme's tenure expiry for complete liquidation. This option is not available to VCFs, regardless of their tenure status. SEBI has invited public comments on the proposal until February 2.
The move follows representations from the AIF industry participants, who highlighted certain tax-related issues and the procedural complexities and costs associated with setting up a liquidation scheme and winding up the original AIF scheme.
Under the proposed framework, during the liquidation period of an AIF scheme, if the AIF chooses the dissolution period, it should secure positive consent from 75 per cent of investors based on the value of their investment. The AIF must then arrange bids for at least 25 per cent of the value of unliquidated investments, and these bids should cover units representing the consolidated value of the scheme's investment portfolio.
SEBI suggested that investor approval and bids should be obtained before the Liquidation Period expiry, with existing liquidation schemes grandfathered. Additionally, it proposed a one-time flexibility extension for AIF schemes whose Liquidation Period has expired or is expiring within one month from the proposal notification.
Furthermore, SEBI recommended a new framework for VCFs to migrate to AIF Regulations, allowing them to access the proposed flexibility in the Liquidation Period and the management of unliquidated investments. The migrated VCFs would create a sub-category under Category I – VCFs called Migrated VCFs. This migration should occur within six months of SEBI's notification, with certain flexibilities under VCF rules continued for migrated VCFs. They should also be exempted from specific AIF Regulations requirements.
(With PTI inputs.)
Published January 15th, 2024 at 16:35 IST