Flexibility to Alternative Investment Funds (AIFs) and their investors to deal with unliquidated investments of their schemes
Summary
This circular introduces flexibility for Alternative Investment Funds (AIFs) to handle unliquidated investments through a defined dissolution period or mandatory in-specie distribution. It establishes specific conditions for investor consent, bidding processes, and valuation metrics during the dissolution phase. Additionally, it grants a one-time extension to schemes with expiring liquidation periods and discontinues the launch of new liquidation schemes.
Text
Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations 2024 have been notified to provide additional flexibility to AIFs and their investors to deal with unliquidated investments of their schemes.
Dissolution period means the period following the expiry of the liquidation period of the scheme for the purpose of liquidating the unliquidated investments of the scheme of the Alternative Investment Fund.
An AIF may enter into the dissolution period after obtaining approval of at least seventy five percent of the investors by value of their investment, subject to conditions specified by the Board.
Before seeking requisite investor consent, the AIF/manager shall arrange bid for a minimum of 25% of the value of its unliquidated investments.
The AIF/manager shall disclose proposed tenure of Dissolution Period, details of unliquidated investments, value recognition, indicative range of bid value, and valuation by two independent valuers to investors prior to seeking consent.
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.
If bid arranged for minimum 25%, dissenting investors shall be offered an option to fully exit the scheme out of the 25% bid arranged by the AIF.
If AIF fails to arrange bid for minimum 25%, it can still opt for Dissolution Period provided it obtains consent of at least 75% of the investors by value.
If the bidder or its related parties are investors in the scheme, such investors shall not be provided exit from the scheme out of the bid.
Value calculated based on bid value if minimum 25% bid arranged; otherwise, One Rupee if bid for minimum 25% is not arranged.
Performance of the manager during the Dissolution Period shall be captured separately and reported to Performance Benchmarking Agencies, distinct from performance before entering Dissolution Period.
If unliquidated investments are not sold during Dissolution Period, they shall be mandatorily distributed in-specie to investors; no further extension or Liquidation Period is available.
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Source: SecMarx — Flexibility to Alternative Investment Funds (AIFs) and their investors to deal with unliquidated investments of their schemes. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.