SEBI/HO/AFD/PoD - 1/P/CIR/2024/123

circulars · 1992 · State unknown

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Parent: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (7c4c1f5343adab106c3a94cafc08a5ecf5957ae7)

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CIRCULAR SEBI/HO/AFD/PoD - 1/P/CIR/2024/123 September 19 , 2024 To, All Alternative Investment Funds Dear Sir/Madam, Subject: Modification in framework for valuation of investment portfolio of AIFs SEBI (Alternative Investment Funds) Regulations, 2012 ('AIF Regulations') were amended and notified on June 15, 2023 and SEBI circular no. SEBI/HO/AFD/PoD/CIR/2023/97 dated June 21, 2023 [subsumed subsequently in Chapter 22 of Master Circular for AIFs dated May 07, 2024 ("Master Circular " )] was issued to provide guidance to AIFs towards a consistent and standardized approach for valuation of their investment portfolios. In terms of Clause 22.1.2 of the Master Circular, valuation of securities which are not covered in para 22.1.1 of the Master Circular, shall be carried out as per valuation guidelines (taking into account recommendations of AIPAC of SEBI), endorsed by any AIF industry association, which in terms of membership represents at least 33% of the number of SEBI registered AIFs. In this context, an eligible AIF industry association meeting the aforesaid criteria, endorsed the International Private Equity and Venture Capital Valuation (IPEV) Guidelines for valuation of investment portfolio of AIFs in terms of Clause 22.1.2 of the Master Circular . Subsequently, SEBI received representations from the AIF industry highlighting issues with regard to certain aspects of the valuation framework for AIFs. In this regard, based on the public comments on consultation paper on " review of certain aspects of the framework for valuation of investment portfolio of AIFs " , recommendations of AIPAC and internal deliberations, the following has been decided: 4.1.Clause 22.1.1 of the Master Circular stands modified as under: 22.1.1 Valuation of securities, other than unlisted securi

Rule TOC

4 · 1.Clause 22.1.1 of the Master Circular stands modified as under:

22 · 1.1 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.

4 · 2.The valuation norms for securities which are not covered in Para 22.1.1 of the master circular have been provided in Clause 22.1.2 of the master circular. For the sake of clarity, the same is reproduced as under:

22 · 1.2 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.

4 · 3.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.

4 · 4.Clause 22.2.2 of the Master Circular stands modified as under:

22 · 2.2 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'.

22 · 2.3 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.

4 · 5.The following new sub-clause is inserted in clause 22.3 of the Master Circular:

22 · 3.4 The eligibility criteria for independent valuer for a partnership entity or company shall be as follows –

4 · 6.The specified timeline as prescribed in Clause 22.4.1 of the master circular, for reporting valuation based on audited data of investee companies as on March 31 every year, to performance benchmarking agencies , has been extended from "six months" to "seven months " . Accordingly, Clause 22.4.1 of the master circular stands modified as under:

22 · 4.1 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.