Framework for AIFs to make co-investment within the AIF structure under SEBI (Alternative Investment Funds) Regulations, 2012
Summary
SEBI has amended the AIF Regulations to permit Category I and II AIFs to offer co-investment facilities through a separate CIV scheme. The circular outlines operational modalities including filing requirements, ring-fencing of assets, and leverage restrictions for these schemes. Compliance is ensured through implementation standards by the Standard Setting Forum and inclusion in the Trustee's Compliance Test Report.
Text
AIF Regulations have been amended to permit Category I and Category II AIFs to offer co-investment facility to accredited investors by launching a separate co-investment scheme (“CIV scheme”) within AIF Regulations.
Managers of AIFs shall make co-investment for an investor in an investee company either through PMS route or CIV scheme route.
Manager of AIF shall file a shelf placement memorandum that inter alia includes principal terms relating to co-investments, governance structure, and regulatory framework for co-investment.
Each CIV scheme shall have separate bank account and demat account and assets of each CIV scheme shall be ring fenced from assets of the other schemes.
Co-investments of an investor in an investee company across CIV schemes shall not exceed three times of the contribution made by such investor in the total investment made in the said investee company through the scheme of the AIF.
The restriction on co-investment limits shall not apply to Multilateral or Bilateral Development Financial Institutions, State Industrial Development Corporations, and entities owned/controlled by Governments or Sovereign Wealth Funds.
In case an investor of a scheme of an AIF excused / excluded or has defaulted in contributing to the investment made in an investee company by such scheme of AIF, such investor shall not be allowed to co-invest in the said investee company.
The manager shall ensure that the CIV scheme does not make any investment that would lead to indirect holding of interests investors cannot hold directly, necessitate additional regulatory disclosure if invested directly, or where the investee company cannot receive investments directly.
CIV Scheme shall not borrow funds directly or indirectly or engage in any kind of leverage.
Investors of a CIV scheme shall have rights in the investment and distribution of proceeds pro-rata to their contribution, except to the extent carried interest is shared with the sponsor, manager, or employees.
Any expenses associated with co-investment shall be shared proportionately between the scheme of AIF and CIV scheme in the ratio of their investments.
CIV scheme shall be subject to implementation standards formulated by Standard Setting Forum of AIF, in consultation with SEBI, to ensure bona-fide purposes and prevent misuse.
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Source: SecMarx — Framework for AIFs to make co-investment within the AIF structure under SEBI (Alternative Investment Funds) Regulations, 2012. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.