**Summary:**
This circular, reference number SEBI/HO/IMD/DIMDI/DOF6/P/CIR/2021/663, issued by the Securities and Exchange Board of India (SEBI) on November 22, 2021, provides clarifications regarding amendments to the SEBI Alternative Investment Funds (AIF) Regulations, 2012.
The circular addresses two key regulatory points:
1. **Concentration Norm for Category III AIFs:** It clarifies the amendment to Regulation 15(1)(d) of the AIF Regulations, allowing Category III AIFs, including large value funds for accredited investors, to calculate concentration limits for investments in listed equity based on the Net Asset Value (NAV) of the fund. The NAV will be calculated on the business day immediately preceding the investment date, including the value of all securities adjusted for mark-to-market gains/losses, cash, and cash equivalents, but excluding borrowed funds. Passive breaches of the concentration norm must be rectified within 30 days.
2. **Coinvestment by Category I and II AIFs:** It clarifies the insertion of Regulation 21(f)(a) concerning coinvestment by Managers, Sponsors, or investors of Category I and II AIFs. Co-investment by investors must be managed through a Coinvestment Portfolio Manager as specified under the SEBI Portfolio Managers Regulations, 2020. The requirement for appointing a custodian under Regulation 20(11) of the AIF Regulations becomes applicable if the combined corpus of the AIF and the value of the coinvestment managed by the AIF's Manager as a Coinvestment Portfolio Manager exceeds INR 500 crore.
This circular is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect investor interests, promote the development of, and regulate the securities market.
The circular is available on the SEBI website (www.sebi.gov.in) under the categories "Legal Framework/Circulars" and "Info for Alternative Investment Funds."
For further information, contact Sanjay Singh Bhati, Deputy General Manager, Investment Management Department, at +91 22 26449222 or via email at ssbhati@sebi.gov.in.
Key Entities Referenced
Alternative Investment Funds: Refers to a class of investment funds that make investments in non-traditional asset classes.
SEBI Alternative Investment Funds Regulations, 2012: A set of regulations by the Securities and Exchange Board of India (SEBI) governing Alternative Investment Funds (AIFs) in India.
Category III AIFs: A category of Alternative Investment Funds (AIFs) that typically invest in listed equities, unlisted equities, and other complex or structured products.
Net Asset Value: The market value of an entity's assets less the value of its liabilities. Often represented as NAV.
Regulation 15(1)(d) of SEBI Alternative Investment Funds Regulations, 2012: A specific regulation within the SEBI Alternative Investment Funds Regulations, 2012 concerning investment limits for Category III AIFs.
Regulation 21(1)(fa): A specific regulation within the SEBI Alternative Investment Funds Regulations, 2012 concerning coinvestment.
Securities and Exchange Board of India: A regulatory body for securities market in India.
Securities and Exchange Board of India Act, 1992: An act of the Parliament of India to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
CIRCULAR
SEBI/HO/IMD/IMD-I/DOF6/P/CIR/2021/663 November 22, 2021
To,
All Alternative Investment Funds (AIFs)
Sir/ Madam,
Sub: Clarifications regarding amendment to SEBI (Alternative Investment Funds)
Regulations, 2012
1. Regulation 15(1)(d) of SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF
Regulations”) has been amended and notified on November 09, 2021 (link of the
notification) to allow Category III AIFs, including any large value funds for accredited
investors of Category III AIFs, to calculate the concentration norm based on Net Asset
Value (NAV) of the fund for investment in listed equity of an investee company.
2. In this regard, the following is specified –
(i) The limit for investment in listed equity shall be calculated based on the NAV of
the fund on the business day immediately preceding the date on which the
Category III AIF makes such investment.
(ii) NAV of the AIF shall be the sum of value of all securities adjusted for mark to
market gains/losses (including cash and cash equivalents). The NAV shall
exclude any funds borrowed by the AIF.
(iii) Passive breach of concentration norm, i.e. when the market value of the
investment of Category III AIF in listed equity of an investee company exceeds
the investment limit as prescribed under Regulation 15(1)(d) of AIF Regulations,
shall be rectified within 30 days from the date of the breach.
3. Further, Regulation 2(1)(fa) has been inserted in AIF Regulations vide the aforesaid
amendment to AIF Regulations to state as under –
“’Co-investment’ means investment made by a Manager or Sponsor or investor of
Category I and II Alternative Investment Fund(s) in investee companies where such
Category I or Category II Alternative Investment Fund(s) make investment:
Page 1 of 2Provided that Co-investment by investors of Alternative Investment Fund shall be
through a Co-investment Portfolio Manager as specified under the Securities and
Exchange Board of India (Portfolio Managers) Regulations, 2020;”
4. In this regard, it is specified that the requirement of appointment of custodian, as
provided under Regulation 20(11) of AIF Regulations, shall be applicable if the sum of
corpus of the AIF and the value of the Co-investment managed by the Manager of the
AIF as Co-investment Portfolio Manager is more than five hundred crore rupees.
5. This Circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 to protect the interests of investors
in securities market and to promote the development of, and to regulate the securities
market.
6. The circular is available on SEBI website at www.sebi.gov.in under the categories
"Legal framework - Circulars" and "Info for - Alternative Investment Funds”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Investment Management Department
Tel no.: +91-22-26449222
ssbhati@sebi.gov.in
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