Executive Summary:
This circular from SEBI outlines guidelines for Alternative Investment Funds (AIFs) regarding the declaration of first close, calculation of tenure, and changes in sponsor/manager control. It specifies timelines for declaring the first close for both new and existing schemes, clarifies how the tenure of close-ended schemes should be calculated, and introduces a fee for changes in sponsor/manager control. The circular is effective immediately.
Key Points / Main Content:
First Close Declaration:
* The first close must be declared within 12 months of SEBI acknowledging the scheme's Private Placement Memorandum (PPM).
* For open-ended Category III AIFs, the first close refers to the end of their Initial Offer Period.
* The scheme's corpus at the first close must meet the minimum corpus requirements defined in AIF Regulations.
* Sponsor/manager commitments at the first close cannot be reduced, withdrawn, or transferred afterward, if those commitments were necessary to meet minimum corpus requirements.
* Existing schemes must declare their first close within 12 months of this circular.
* Schemes whose PPMs were recorded more than 12 months before this circular must submit an updated PPM via a SEBI-registered merchant banker before declaring the first close.
* For Large Value Fund for Accredited Investors (LVF) schemes, the first close must be declared within 12 months of AIF registration or PPM filing, whichever is later.
* If the first close isn't declared within the specified time, a fresh application is needed with applicable fees.
Tenure Calculation:
* The tenure of close-ended schemes is calculated from the date of the first close.
* AIFs can modify a scheme's tenure before the first close, during which investors can withdraw or reduce their commitment.
* Existing schemes that have declared their first close can continue to calculate their tenure from the date of final close, as per SEBI Circular CIR/IMD/DF/7/2015. Such schemes must declare their final close as per the timeline provided in the PPM, without extension by the AIF/manager.
Fee for Change in Sponsor/Manager:
* A fee equivalent to the AIF's registration fee is levied for changes in control of, or changes to, the manager/sponsor. These costs cannot be passed on to investors.
* If changes in control/changes to the manager and sponsor occur simultaneously, only a single registration fee is levied.
* The fee is not applicable when the manager acquires control or replaces the sponsor, or in the case of sponsor exits when the AIF has multiple sponsors.
* The fee must be paid within 15 days of the change.
* For pending applications as of the circular date, the fee applies only if none of the AIF's schemes have declared their first close.
* SEBI's approval for the change is valid for 6 months.
Impact Analysis:
Alternative Investment Funds (AIFs):
* Impact: AIFs must comply with the new guidelines for declaring first close, calculating tenure, and handling changes in sponsor/manager control. They also face new fee implications for changes in control of managersponsor or change in managersponsor.
* Action Required: AIFs must review their existing schemes and procedures to ensure compliance, declare the first close within the specified timelines, and pay the applicable fees for relevant changes.
Sponsors and Managers of AIFs:
* Impact: Sponsors and managers are subject to the new regulations regarding commitment to the scheme's corpus, calculation of tenure and are now responsible for paying fees associated with changes in control or replacements, and cannot pass the cost on to investors.
* Action Required: Sponsors and managers need to understand their responsibilities related to first close commitments, factor in the new fees for changes in control, and ensure compliance with the tenure calculation method.
Investors in AIFs:
* Impact: The circular aims to protect investor interests by standardizing first close declarations, providing clarity on tenure calculations, and preventing sponsors/managers from passing on change-of-control fees.
* Action Required: Investors should be aware of the implications of the first close declaration and tenure calculation on their investments and should monitor any changes in sponsor/manager control.
SEBI Registered Merchant Bankers:
* Impact: Merchant bankers are required to perform due diligence and submit updated PPMs for certain AIF schemes.
* Action Required: Merchant bankers must adhere to the specified format and due diligence requirements when submitting updated PPMs for AIF schemes.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular and responsible for regulating the securities market in India.
Alternative Investment Funds (AIFs): The entities to whom the circular is addressed and whose activities are being regulated.
SEBI Alternative Investment Funds Regulations, 2012 (AIF Regulations): The primary regulations governing Alternative Investment Funds in India, which are being amended by this circular.
First Close: A significant milestone for AIF schemes, the declaration of which is subject to specific timelines and conditions outlined in the circular.
PPM: Private Placement Memorandum of the scheme which needs to be submitted to SEBI.
Large Value Fund for Accredited Investors (LVF): A specific type of AIF scheme with particular rules regarding the declaration of First Close.
Securities and Exchange Board of India Act, 1992: The act under which SEBI derives its powers to regulate the securities market.
SEBI Circular CIRIMDDF72015 dated October 1, 2015: Previous circular that defines how existing schemes of AIFs which have declared their First Close can calculate their tenure from the date of Final Close.
CIRCULAR
SEBI/HO/AFD-1/PoD/P/CIR/2022/155 November 17, 2022
To,
All Alternative Investment Funds (AIFs)
Sir/Madam,
Sub: Guidelines for AIFs for declaration of first close, calculation of tenure and
change of sponsor/manager or change in control of sponsor/manager
1. SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”), have
been amended and notified on November 15, 2022. Copy of the notification is
available at link.
2. Timeline for declaration of First Close of schemes of AIFs:
In terms of Regulation 12(4) of AIF Regulations, the first close of the scheme shall
be declared by an AIF in the manner as may be specified by SEBI from time to
time. In this regard, the following is specified:
2.1. The First Close of a scheme shall be declared not later than 12 months from
the date of SEBI communication for taking the PPM of the scheme on record.
2.2. In case of open ended schemes of Category III AIFs, the First Close shall refer
to the close of their Initial Offer Period.
2.3. Corpus of the scheme at the time of declaring its First Close shall not be less
than the minimum corpus prescribed in AIF Regulations for the respective
category/sub-category of the AIF.
2.4. The commitment provided by sponsor or manager at the time of declaration of
First Close, to the extent to meet the aforesaid minimum corpus requirement,
shall not be reduced or withdrawn or transferred, post First Close.
2.5. Existing schemes of AIFs, who have not declared their First Close, shall
declare their First Close not later than 12 months from the date of this circular.
2.6. Existing schemes of AIFs, whose PPMs were taken on record prior to 12
months from the date of this circular and have not declared their First Close,
shall submit updated PPM with SEBI in the format specified in SEBI circular
Page 1 of 4SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05, 2020, through a SEBI
registered merchant banker along with due diligence certificate from the
merchant banker as specified in Annexure A of SEBI Circular
SEBI/HO/IMD/IMD-I/DF6/P/CIR/2021/645 dated October 21, 2021 and such
updated PPM shall be circulated to investors before declaration of First Close.
2.7. The First Close of Large Value Fund for Accredited Investors (“LVF”) scheme
shall be declared not later than 12 months from the date of grant of registration
of the AIF or date of filing of PPM of scheme with SEBI, whichever is later.
2.8. Existing LVF schemes shall declare their First Close not later than 12 months
from the date of this circular.
2.9. In case the First Close of a scheme is not declared within the timeline
prescribed above, the AIF shall file a fresh application for launch of the said
scheme as per applicable provisions of AIF Regulations by paying requisite fee
to SEBI.
3. Calculation of tenure of close-ended schemes of AIFs:
In terms of Regulation 13(4) of AIF Regulations, the manner of calculating the
tenure of a close ended scheme of an AIF, including the manner of modification of
the tenure, may be specified by SEBI from time to time. In this regard, the following
is specified:
3.1. The tenure of close ended schemes of AIFs shall be calculated from the date
of declaration of the First Close.
3.2. AIF may modify the tenure of a scheme at any time before declaration of its
First Close. Prior to declaration of the First Close, the investor may withdraw or
reduce commitment provided to such scheme of an AIF.
3.3. Existing schemes of AIFs which have declared their First Close, may continue
to calculate their tenure from the date of Final Close in terms of SEBI Circular
CIR/IMD/DF/7/2015 dated October 1, 2015. Such existing schemes of AIFs,
which are yet to declare Final Close, shall declare their Final Close as per the
timeline provided in the PPM of the scheme and the AIF/manager shall not
have any discretion to extend the said timeline provided in the PPM.
Page 2 of 44. Fee for change in control of manager/sponsor or change in manager/sponsor
of AIFs:
In terms of Regulation 20(13) of AIF Regulations, in case of change of Sponsor or
Manager, or change in control of the AIF, Sponsor or Manager, prior approval from
the Board shall be taken by the AIF, subject to levy of fees and any other
conditions as may be specified by SEBI from time to time. In this regard, the
following is specified:
4.1. A fee equivalent to the registration fee applicable to the respective category /
sub-category of the AIF, shall be levied in case of change in control of
manager/sponsor and in case of change in manager/sponsor. The cost paid
towards such fee by manager/sponsor shall not be passed on to the investors
of the AIF in any manner.
4.2. In case change in control of manager/change of manager and change in
control of sponsor/change of sponsor of an AIF is proposed simultaneously,
aforesaid fee equivalent to single registration fee shall be levied.
4.3. The aforesaid fee shall not be levied in the following cases for change in
sponsor or change in control of sponsor:
i) The manager is acquiring control in or replacing the sponsor and
ii) Exit of sponsor(s) in case of AIF having multiple sponsors.
4.4. The aforesaid fee shall be paid within 15 days of effecting the proposed
change in manager/sponsor or change in control of manager/sponsor.
4.5. In case of the applications pending with SEBI as on the date of this circular, for
change in control of manager/sponsor or change in manager/sponsor, the
requirement of fee shall be applicable only in those applications where none of
the schemes of AIFs managed/sponsored by manager/sponsor have declared
their First Close.
4.6. The prior approval granted by SEBI in this regard shall be valid for a period of
6 months from the date of SEBI communication for the approval.
5. This circular shall come into force with immediate effect.
6. This circular is issued with the approval of the competent authority.
7. 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
Page 3 of 4investors in securities and to promote the development of, and to regulate the
securities market.
8. 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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