Sebi considers providing flexibility to AIFs to offer co-investment opportunities to investors
Additionally, it has suggested removing the prohibition on investment managers of AIFs (alternative investment funds) to provide advisory services in listed securities.
The Securities and Exchange Board of India (Sebi) has proposed providing flexibility to alternative investment funds (AIFs) to offer co-investment opportunities to investors within the AIF structure.
Additionally, it has suggested removing the prohibition on investment managers of AIFs to provide advisory services in listed securities.
Co-investment, in AIF industry parlance, refers to the offering of the investment opportunity to the investors for additional investment in unlisted securities of an investee company, where an AIF is also making or has made the investment.
Such investment opportunities are offered to investors who meet certain objective criteria, such as the size of the minimum commitment and strategic value of the investor, among others.
In its consultation paper, the regulator has proposed enabling AIFs to offer co-investment opportunities in unlisted securities through a co-investment vehicle (CIV) as a separate scheme of an AIF launched specifically for making a co-investment.
It has been "proposed to allow managers of AIFs to offer co-investment opportunities to investors of AIFs through the CIV model with certain conditions."
The report also suggested that CIV should be a scheme of the AIF (Category I or Category II), which will facilitate co-investment of investors in any schemes of the AIF, in unlisted securities of investee companies of the AIF.
A shelf PPM for the CIV scheme should be filed with Sebi at the time of registration of AIF, if it intends to provide a co-investment facility to its investors, the regulator suggested.
Further, existing AIFs can also file the shelf PPM with Sebi for this purpose.
A separate CIV scheme should be launched for each co-investment in an investee company under intimation to Sebi, in accordance with the shelf PPM for the CIV scheme filed with the regulator.
The market regulator Sebi has suggested that each CIV scheme should have a separate bank account, demat account and PAN. Co-investment through the CIV scheme should be offered only to accredited investors.
CIV scheme shall be exempted from the following requirements - investment diversification norms, manager/sponsor investment commitment, and minimum tenure of the scheme of an AIF.
Further, the CIV scheme should be subject to implementation standards formulated by a standard-setting forum of AIF to ensure that the investments by the CIV scheme are made for bona fide purposes and that the flexibility extended in this regard is not misused, Sebi said.
Sebi has sought public comments till May 30 on the proposals.
Edited by Swetha Kannan