Conditions for AIF investments unsold

Through a circular issued on April 26, 2024, SEBI has inter alia prescribed conditions for distribution of investments of an Alternative Investment Fund (AIF) which are not sold due to lack of liquidity, whether in-specie to the investors or by entering into the dissolution period (after obtaining approval of at least 75% of the investors by value of their investment in the scheme of the AIF). These conditions have been reproduced below:

1.  Before seeking the requisite investor consent, the AIF / manager shall arrange bid for a minimum of 25% of the value of its unliquidated investments. The bid shall be arranged for units representing consolidated value of all unliquidated investments of the scheme’s investment portfolio. The manager may arrange bids from multiple bidders in this regard.

2. The AIF / manager shall disclose the following to investors prior to seeking their consent–

i. The proposed tenure of the Dissolution Period, details of unliquidated investments, value recognition of the unliquidated investments for reporting to Performance Benchmarking Agencies, etc.

ii. An indicative range of bid value, along with the valuation of the unliquidated investments carried out by two independent valuers.

3. Prior to expiry of the Liquidation Period, the AIF / manager shall intimate SEBI about obtaining the investor consent and the investors’ decision to enter into Dissolution Period.

4. If the AIF / manager successfully arranges bid for a minimum of 25% of the value of unliquidated investments of the scheme, the dissenting investors of the scheme shall be offered an option to fully exit the scheme out of the 25% bid arranged by the AIF. After exercising the exit option by aforesaid dissenting investors, any unsubscribed portion of the bid may be used to provide pro-rata exit to non-dissenting investors should they opt for the same.

5. If the AIF / manager fails to arrange bid for a minimum of 25% of the value of unliquidated investments of the scheme, the AIF can still opt for Dissolution Period, provided that it obtains consent of at least 75% of the investors by value of their investment in the scheme of the AIF.

6. If the bidder or its related parties are investor(s) in the scheme, such investor(s) shall not be provided exit from the scheme out of the bid. [“Related party” to have the same meaning as provided in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.]

7. At the time of entering into Dissolution Period, for appropriately capturing the track record of performance of the manager and for reporting the same to Performance Benchmarking Agencies, the value of such unliquidated investments of the scheme shall be calculated in the following manner –

i. Based on bid value, if the AIF / manager arranges bid for a minimum of 25% of the value of unliquidated investments of the scheme; or

ii. One Rupee, if the AIF / manager fails to arrange bid for a minimum of 25% of the value of unliquidated investments of the scheme.

8. The performance of the manager during the Dissolution Period shall be captured separately and reported to Performance Benchmarking Agencies, distinct from the performance of the scheme before entering into Dissolution Period.

9. If the scheme of the AIF fails to sell the unliquidated investments during the Dissolution Period, such investments shall be mandatorily distributed in-specie to the investors. It is clarified that no further extension or Liquidation Period shall be available to these schemes after the expiry of Dissolution Period.

10.  The manager of the AIF shall not charge management fee during the Dissolution Period.

 Compiled by Siddharth V.V