SEBI vide notification dated 09 November, 2021 has amended the provisions of SEBI (AIF) Regulations 2012 and SEBI (Portfolio Managers) Regulations 2020 to provide for co-investment by investors of AIF through a co-investment Portfolio Manager. It has been clarified that the amendments will come into force on the thirtieth (30th) day from the date of their publication in the Official Gazette. Thus, the new regime will be applicable only for co-investment made on or after 09 December. The key amendments are as follows:
A. Co-investment by investors of Category I and II AIF through Co-investment Portfolio Manager
1. For the first time, SEBI has defined co-investments as investments made by a Manager or Sponsor or investor of Category I and II AIFs in investee companies where such Category I or II AIFs make investment:
Provided that Co-investment by investors of AIFs shall be through a Co-investment Portfolio Manager as specified under the SEBI (Portfolio Managers) Regulations, 2020.
2. SEBI has clarified that the terms of Co-investment in an investee company by a Manager or Sponsor or co-investor, shall not be more favourable than the terms of investment of the AIF:
Provided that the terms of exit from the Co-investment in an investee company including the timing of exit shall be identical to the terms applicable to that of exit of the AIF:
The above proviso shall be applicable only for co-investment made from the date of coming into force of the amendment regulations;
3. The manager is prohibited from advising any other investor other than the clients of Co-investment Portfolio Manager as specified in the SEBI (Portfolio Managers) Regulations 2020, for investment in securities of investee companies where the AIF managed by it makes investment
B. Relaxation in concentration limits for Category III AIFs
4. Category III AIFs are permitted to calculate concentration norms based on the net asset value (NAV) of the fund. In this regard, SEBI has clarified that -
Category III AlFs shall invest not more than ten per cent (10%) of the NAV in listed equity of an Investee Company. Until now, the 10% limit was to be calculated on investible funds. However, in cases of securities other than listed equity, the investment limit of 10% of investible funds would continue to be applicable.
Large value funds for accredited investors of Category III AIFs may invest up to twenty per cent (20%) of the net asset value (NAV) in listed equity of an Investee Company and may invest up to twenty per cent (20%) of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other AIFs.
The amendments to AIF regulations relating to Co-investment by investors of Category I and II AIFs through a Co-investment Portfolio Manager help in providing a much required opportunity for co-investments by managers. However, some of the conditions may need to be modified or further amended. Further, relaxations with regards to concentration limits for listed equities is a positive step and provides more freedom and clarity to Category III AIFs to invest larger amounts in portfolio entities as the market value of their investments increases.
The notification can be accessed here:
https://www.sebi.gov.in/legal/regulations/nov-2021/securities-and-exchange-board-of-india-alternative-investment-funds-fifth-amendment-regulations-2021_53830.html