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SEBI Consultation Paper on Providing Flexibility to AIFs and VCFs for Dealing with Unliquidated Investments
SEBI Proposes Flexibility for AIFs and VCFs in Managing Unliquidated Investments
SEBI Proposes Flexibility for AIFs and VCFs in Managing Unliquidated Investments
The Securities and Exchange Board of India (SEBI) has released a consultation paper addressing the need for flexibility in dealing with unliquidated investments for Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs). The paper seeks comments, views, and suggestions from the public on proposals to provide flexibility to AIFs and VCFs and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure.
Key Takeaways
1. Objective: The consultation paper aims to seek comments, views, and suggestions from the public on the proposals to provide flexibility to AIFs and VCFs and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure.
2. Background: The AIF Regulations were amended to provide flexibility to AIFs to deal with unliquidated investments of their schemes. The option to launch a Liquidation Scheme is presently available only to those schemes of AIFs which are under the ‘Liquidation Period’.
3. Issues for Consideration: The paper addresses the need to provide flexibility to AIFs to deal with unliquidated investments within the same scheme of AIF instead of the requirement of launching a new scheme (‘Liquidation Scheme’).
4. Proposal A: AIF Regulations may be suitably amended to allow schemes of AIFs to enter into a Dissolution Period/Process to deal with unliquidated investments of their schemes upon completion of tenure.
5. Proposal B: SEBI proposes a one-time flexibility to schemes of AIFs, whose Liquidation Period has expired, to deal with unliquidated investments.
6. Extending Flexibility to VCFs through Migration to AIF Regime: SEBI proposes a new framework for migration of VCFs to AIF Regulations, allowing VCFs to avail the proposed flexibility of Liquidation Period and the flexibility of dealing with unliquidated investments by opting for Dissolution Period/Process.
Synopsis:
The Securities and Exchange Board of India (SEBI) has released a consultation paper addressing the need for flexibility in dealing with unliquidated investments for Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs). The consultation paper seeks comments, views, and suggestions from the public on the proposals to provide flexibility to AIFs and VCFs and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure.
Objective
The objective of this consultation paper is to seek comments, views, and suggestions from the public on the proposals to provide flexibility to AIFs registered under the SEBI (AIF) Regulations, 2012, VCFs registered under the erstwhile SEBI (VCF) Regulations, 1996, and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure.
Background
The AIF Regulations were amended and notified on June 15, 2023, to provide flexibility to AIFs to deal with investments of their schemes which are not sold due to lack of liquidity during the winding-up process. This was done by either selling such investments to a new scheme of the same AIF (Liquidation Scheme) or distributing such unliquidated investments in-specie to investors. The operational modalities of launching a Liquidation Scheme were specified in a SEBI Circular dated June 21, 2023.
Issues for Consideration
The consultation paper addresses several issues for consideration, including providing flexibility to AIFs to deal with unliquidated investments within the same scheme of AIF instead of the requirement of launching a new scheme (Liquidation Scheme). It also discusses the need for a one-time flexibility to schemes of AIFs, whose Liquidation Period has expired, to deal with unliquidated investments.
Proposals
The consultation paper proposes several amendments and frameworks to address the issues for consideration. These proposals include providing flexibility to AIFs to deal with unliquidated investments within the same scheme, allowing AIFs to enter into a Dissolution Period/Process to deal with unliquidated investments of their schemes upon completion of tenure, and extending the flexibility of Dissolution Period/Process to VCFs through migration to AIF regime.
The proposed framework for migration of VCFs to AIF Regulations includes creating a sub-category under Category I – VCFs called “Migrated VCFs” and specifying principles of migration, governance/disclosures, and the applicability of circulars under AIF Regulations to Migrated VCFs.
Public Comments
The consultation paper invites public comments on the proposals A, B, and C. Comments and suggestions may be provided in a specified format and sent to the designated authorities by a specified date.
FAQ
Q1: What is the objective of the consultation paper?
A1: The objective of the consultation paper is to seek comments, views, and suggestions from the public on the proposals to provide flexibility to AIFs and VCFs and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure.
Q2: What are the key proposals in the consultation paper?
A2: The key proposals include providing flexibility to AIFs to deal with unliquidated investments within the same scheme, a one-time flexibility for schemes of AIFs whose Liquidation Period has expired, and extending flexibility to VCFs through migration to AIF Regulations.
Q3: How can the public provide comments on the consultation paper?
A3: Public comments can be provided in an MS Excel file as per the format provided in the consultation paper. The comments can be sent via email or post to the specified addresses.
