Executive Summary:
SEBI's circular introduces standardized disclosure norms for Alternative Investment Funds (AIFs) through mandated Private Placement Memorandum (PPM) templates and performance benchmarking. The PPM template requirement is effective from March 01, 2020. Associations of AIFs will appoint Benchmarking Agencies, with the first industry benchmark and AIF level performance reports due by July 01, 2020, for performance up to September 30, 2019.
Key Points / Main Content:
PPM Templates:
* Mandates PPM templates for AIFs to ensure minimum disclosure standards.
* PPM template consists of Part A (minimum disclosures) and Part B (supplementary information).
* Specific PPM templates provided for Category I & II AIFs (Annexure 1) and Category III AIFs (Annexure 2).
* Annual audit of PPM compliance is mandatory (excluding sections on Risk Factors, Legal, Regulatory & Tax Considerations, and Track Record of First Time Managers). Audit findings must be communicated to relevant parties, including SEBI.
* Terms of contribution/subscription agreements must align with the PPM.
* PPM template and audit requirements do not apply to Angel Funds or AIFs where each investor commits a minimum of INR 70 crores (USD 10 million equivalent) and waives the PPM requirement and audit (Annexure 3).
Performance Benchmarking:
* Mandatory performance benchmarking of AIFs, including Venture Capital Funds.
* Framework for customized performance reports using collected data.
* Associations of AIFs (representing at least 51% of AIFs by membership) must notify Benchmarking Agencies.
* AIFs must enter into agreements with Benchmarking Agencies for data reporting, covering data specifics, confidentiality, and usage terms.
* AIFs must report necessary scheme information (valuation, cash flow data) to Benchmarking Agencies for schemes that have completed at least one year from the date of First Close.
* Past AIF performance mentioned in PPM or marketing materials must include the performance versus benchmark report from Benchmarking Agencies.
* Performance comparisons to any benchmark in reporting to existing investors must include the Benchmarking Agency's report.
* Associations will appoint Benchmarking Agencies and set timelines for data reporting, with the first industry benchmark and AIF level performance reports available by July 01, 2020, for the performance up to September 30, 2019. Monthly progress reports to SEBI are required until the first benchmark is created.
* Operational guidelines for performance benchmarking are in Annexure 4.
* Customized performance reports can be generated by Benchmarking Agencies with the consent of relevant AIFs and mutually agreed terms.
* Performance benchmarking requirements do not apply to Angel Funds registered under the Venture Capital Fund subcategory of Category I AIF.
Impact Analysis:
AIFs:
* Impact: Must comply with PPM template requirements and undergo annual audits (unless exemptions apply). Required to participate in performance benchmarking and report data to Benchmarking Agencies. Must disclose performance versus benchmark reports in relevant documents.
* Action Required: Adopt PPM templates, conduct audits, enter agreements with Benchmarking Agencies, report data, and disclose performance reports.
Investors:
* Impact: Will receive standardized disclosures through PPMs and have access to performance benchmarks for AIFs, enabling better investment decisions.
* Action Required: Review PPMs and performance reports to assess AIFs.
Associations of AIFs:
* Impact: Responsible for notifying Benchmarking Agencies and coordinating data reporting processes.
* Action Required: Appoint Benchmarking Agencies, set timelines for data reporting, and submit monthly progress reports to SEBI until the creation of the first industry benchmark.
Benchmarking Agencies:
* Impact: Will enter agreements with AIFs, collect and process data, and generate benchmark reports.
* Action Required: Establish agreements with AIFs, define data reporting formats, and generate benchmark reports.
SEBI:
* Impact: Oversees compliance with the new disclosure standards and performance benchmarking requirements.
* Action Required: Monitor compliance and review progress reports from Associations of AIFs.
Key Entities Referenced
Alternative Investment Funds: A type of investment fund that typically invests in less traditional assets.
SEBI: Securities and Exchange Board of India, the regulator of the securities market in India.
Private Placement Memorandum: A disclosure document used to solicit investments in a private offering, such as from an AIF.
Alternative Investment Policy Advisory Committee: A committee that provides advice on policies related to Alternative Investment Funds.
Angel Funds: A sub-category of Venture Capital Fund under Category I AIF.
Securities and Exchange Board of India Act, 1992: The act of Indian parliament that established the Securities and Exchange Board of India (SEBI).
Venture Capital Funds: A type of private equity investment focused on funding early-stage companies.
Benchmarking Agencies: Entities that will be responsible for comparing the performance of AIF industry against other investment avenues
CIRCULAR
SEBI/HO/IMD/DF6/CIR/P/2020/24 February 05, 2020
All Alternative Investment Funds
Sir/ Madam,
Sub: Disclosure Standards for Alternative Investment Funds (AIFs)
1. As a part of SEBI’s initiatives to streamline disclosure standards in the growing
AIF space, SEBI through a Consultation Paper dated December 4, 2019 sought
public comments on ‘Introduction of Performance Benchmarking’ and
‘Standardization of Private Placement Memorandum (PPM) for AIFs’. Considering
inputs from public consultation and deliberations in Alternative Investment Policy
Advisory Committee (AIPAC), it has been decided to introduce template(s) for
PPM, subject to certain exemptions, and mandatory performance benchmarking
for AIFs with provisions for additional customized performance reporting.
A. Template(s) for PPM
2. PPM is a primary document in which all the necessary information about the AIF
is disclosed to prospective investors. To ensure that a minimum standard of
disclosure is made available in the PPM, it has been decided to mandate a
template for the PPM providing certain minimum level of information in a simple
and comparable format. AIFs are also permitted to provide additional information
in their PPM.
3. Thus, the template for PPM shall have two parts viz.
Part A – section for minimum disclosures, and
Part B – supplementary section to allow full flexibility to the Fund in order to
provide any additional information, which it deems fit.
4. The template for PPM of AIFs raising funds under Category I and Category II is
provided at Annexure 1. The template for PPM of AIFs raising funds under
Category III is provided at Annexure 2.
5. Further, in order to ensure compliance with the terms of PPM, it will be mandatory
for AIFs to carry out an annual audit of such compliance. The audit shall be carried
out by either internal or external auditor/legal professional. However, audit of
sections of PPM relating to ‘Risk Factors’, ‘Legal, Regulatory and Tax
Considerations’ and ‘Track Record of First Time Managers’ shall be optional.
Page 1 of 46. The findings of the audit, along with corrective steps, if any, shall be
communicated to the Trustee or Board or Designated Partners of the AIF, Board
of the Manager and SEBI.
7. The terms of contribution or subscription agreement (by any name as it may be
called), shall be aligned with the terms of the PPM and shall not go beyond the
terms of the PPM.
8. The requirements as mentioned at para no. 2 and 5 above shall not apply to the
following:
(i) Angel Funds as defined in SEBI (Alternative Investment Funds),
Regulations 2012.
(ii) AIFs/Schemes in which each investor commits to a minimum capital
contribution of INR 70 crores (USD 10 million or equivalent, in case of
capital commitment in non-INR currency) and also provides a waiver to the
fund from the requirement of PPM in the SEBI prescribed template and
annual audit of terms of PPM, in the manner provided at Annexure 3.
9. The aforesaid requirements shall come into effect from March 01, 2020.
B. Performance Benchmarking of AIFs
10. Based on the request of the industry, it was considered appropriate that an
industry benchmark be developed to compare the performance of AIF industry
against other investment avenues, as also global investment opportunities.
Accordingly, a proposal for performance benchmarking of AIFs was incorporated
in the aforementioned Consultation Paper.
11. As the industry needs the flexibility to showcase its performance based on different
criteria and benchmarking of performance of AIFs will help investors in assessing
the performance of the AIF industry, it is decided to introduce:
a. Mandatory benchmarking of the performance of AIFs (including Venture
Capital Funds) and the AIF industry.
b. A framework for facilitating the use of data collected by Benchmarking
Agencies to provide customized performance reports
12. In this regard, the following is mandated:
(i) Any association of AIFs (“Association”), which in terms of membership,
represent at least 51% of the number of AIFs, may notify one or more
Benchmarking Agencies, with whom each AIF shall enter into an agreement
for carrying out the benchmarking process.
Page 2 of 4(ii) The agreement between the Benchmarking Agencies and AIFs shall cover
the mode and manner of data reporting, specific data that needs to be
reported, terms including confidentiality in the manner in which the data
received by the Benchmarking Agencies may be used, etc.
(iii) AIFs, for all their schemes which have completed at least one year from the
date of ‘First Close’, shall report all the necessary information including
scheme-wise valuation and cash flow data to the Benchmarking Agencies in
a timely manner.
(iv) The form and format of reporting shall be mutually decided by the Association
and the Benchmarking Agencies.
(v) If an applicant claims a track-record on the basis of India performance of funds
incorporated overseas, it shall also provide the data of the investments of the
said funds in Indian companies to the Benchmarking Agencies, when they
seek registration as AIF.
(vi) In the PPM, as well as in any marketing or promotional or other material,
where past performance of the AIF is mentioned, the performance versus
benchmark report provided by the benchmarking agencies for such
AIF/Scheme shall also be provided.
(vii) In any reporting to the existing investors, if performance of the AIF/Scheme is
compared to any benchmark, a copy of the performance versus benchmark
report provided by the Benchmarking Agency shall also be provided for such
AIF/scheme.
(viii) As a first step, Association will appoint Benchmarking Agencies and thereafter
will set timeline for reporting of requisite data to Benchmarking Agencies by
all the registered AIFs. In this regard, Association and Benchmarking
Agencies will ensure that the first industry benchmark and AIF level
performance versus Benchmark Reports are available latest by July 01, 2020,
for the performance upto September 30, 2019. Further the Association shall
submit a progress report in this regard to SEBI on a monthly basis till the
creation of first industry benchmark.
13. The operational guidelines for performance benchmarking are provided at
Annexure 4.
14. In addition to the standard benchmark report prepared by the Benchmarking
Agencies, if any AIF seeks customized performance reports in a particular
manner, the same may be generated by the Benchmarking Agencies, subject to:
(i) Consent of the AIFs, whose data needs to be considered for generation of
the customized performance report.
Page 3 of 4(ii) Terms and conditions, including fees, decided mutually between the
Benchmarking Agencies and the AIF.
15. The requirements as mentioned at para no. 11 to 14 above shall not apply to Angel
Funds registered under sub-category of Venture Capital Fund under Category I -
AIF.
16. 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 and to promote the development of, and to regulate the
securities market.
17. 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
Tel no.: +91-22-26449222
ssbhati@sebi.gov.in
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