Modification in framework for valuation of investment portfolio of AIFs
Summary
This circular modifies the valuation framework for Alternative Investment Funds (AIFs) by aligning norms for certain securities with Mutual Fund Regulations. It extends the timeline for reporting audited valuation data to performance benchmarking agencies from six months to seven months. Additionally, it clarifies that changes in valuation methodology do not constitute a material change and updates eligibility criteria for independent valuers.
Text
Valuation of securities, other than unlisted securities and listed securities which are non-traded and thinly traded, for which valuation norms have been prescribed under SEBI (Mutual Funds) Regulations, 1996 ('MF Regulations'), shall be carried out as per the norms prescribed under MF Regulations.
Valuation of securities which are not covered in para 22.1.1 above, shall be carried out as per valuation guidelines endorsed by any AIF industry association, which in terms of membership represents at least 33% of the number of SEBI registered AIFs. The eligible AIF industry association shall endorse appropriate valuation guidelines after taking into account recommendations of Alternative Investment Policy Advisory Committee of SEBI.
With respect to thinly traded and non-traded securities, it is envisaged to harmonize the valuation norms across entities within SEBI’s regulatory purview in a time bound manner so as to facilitate applicability of the same for valuation of investment portfolios of AIFs on or after March 31, 2025.
Change in valuation methodology/approach to comply with Clause 22.1 of Master circular for AIFs on 'Standardised approach to valuation of investment portfolio of AIFs', shall not be construed as 'Material Change'. Change in methodology/approach within the valuation guidelines / valuation norms prescribed for AIFs, shall not be construed as a 'Material Change'. However, upon such change, the valuation of the investment carried out based on valuation methodologies / approaches, both old and new, shall be disclosed to the investors to ensure transparency.
The eligibility criteria for independent valuer for a partnership entity or company shall be as follows – (i) Such entity or company shall be a ‘Registered Valuer Entity’ registered with IBBI; and, (ii) the deputed/authorized person(s) of such ‘Registered Valuer Entity’, who undertake(s) the valuation of investment portfolio of AIFs, shall have a membership of ICAI or ICSI or ICMAI or a CFA Charter from the CFA Institute.
Manager of AIF shall ensure that a specific timeframe for providing audited accounts by the investee company to the AIF is included as one of the terms in subscription agreement / investment agreement with the investee company, so as to enable AIFs to report valuation based on audited data of investee companies as on March 31 to performance benchmarking agencies within the specified timeline of seven months i.e by October 31 of each year.
The trustee/sponsor of AIF, as the case may be, shall ensure that the ‘Compliance Test Report’ prepared by the manager in terms of Chapter 15 of the master circular for AIFs, includes compliance with the provisions of this circular.
The provisions of this circular shall come into force with immediate effect.
This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 23 and Regulation 36 of AIF Regulations, 2012 to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
Source: SecMarx — Modification in framework for valuation of investment portfolio of AIFs. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.