SEBI Provides Informal Guidance on AIF Investment Limits

Key Takeaways:

1. SEBI’s interpretation clarifies that the concentration limit of 25% in an Investee Company applies at the level of individual Target Companies acquired by the ARC Trust.

2. The threshold limit is calculated based on individual Target Companies acquired by the ARC Trust, in addition to direct investments made by the AIF.

3. The guidance aims to foster transparency and compliance within the alternative investment landscape, promoting investor confidence and market integrity.

Synopsis:

The Securities and Exchange Board of India (SEBI) in response to a query from Mangalkari Asset Investment AIF, a SEBI registered Category II Alternative Investment Fund (AIF), seeking guidance on the interpretation of Regulation 15(1)(c) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”).

The key points and provide a detailed explanation:

1. Regulation 15(1)(c) of AIF Regulations: This regulation pertains to the investment limits of Category I and II Alternative Investment Funds (AIFs), specifically restricting them from investing more than twenty-five per cent of their investable funds in an Investee Company directly or through investment in units of other Alternative Investment Funds.

2. Background: Mangalkari Asset Investment AIF sought interpretive guidance under the Securities and Exchange Board of India (Informal Guidance) Scheme 2003 regarding the application of Regulation 15(1)(c) of the AIF Regulations. The query centered on whether the threshold limit of 25% in an Investee Company applies at the level of individual Target Companies acquired by the ARC Trust or at the level of the individual ARC Trust itself.

3. Interpretation by SEBI: SEBI, through its Deputy General Manager of the Alternative Investment Fund and Foreign Portfolio Investor Department, provided insightful comments on this matter. They clarified that the concentration limit specified in Regulation 15(1)(c) applies not only to direct investments in an Investee Company but also to investments made through units of other AIFs. Therefore, the threshold limit is calculated based on individual Target Companies acquired by the ARC Trust, in addition to direct investments made by the AIF.

4. Illustration: SEBI provided an illustration to better understand the interpretation. It explained a scenario where an AIF invests directly in a company and also invests in another AIF, which further invests in the same company. The total exposure to the company is calculated based on these investments.

5. Conclusion: SEBI’s interpretation clarifies that the concentration limit of 25% in an Investee Company applies at the level of individual Target Companies acquired by the ARC Trust. This guidance provides clarity to AIFs and ensures adherence to regulatory norms in their investment activities.

6. SEBI’s Aim: By providing such guidance, SEBI aims to foster transparency and compliance within the alternative investment landscape, thereby promoting investor confidence and market integrity.

The interpretive letter from SEBI provides valuable insights into the interpretation of Regulation 15(1)(c) of the AIF Regulations, ensuring that AIFs understand and adhere to the investment limits prescribed by regulatory frameworks. It’s important to note that SEBI’s views expressed in the letter are specific to the query raised and do not affect the applicability of other laws, regulations, guidelines, or circulars administered by SEBI or any other authority.

FAQ:

Q1: What is the interpretation provided by SEBI regarding Regulation 15(1)(c) of the AIF Regulations?

A1: SEBI clarified that the concentration limit specified in Regulation 15(1)(c) applies not only to direct investments in an Investee Company but also to investments made through units of other AIFs. Therefore, the threshold limit is calculated based on individual Target Companies acquired by the ARC Trust, in addition to direct investments made by the AIF.

Q2: How does SEBI’s guidance impact the alternative investment landscape?

A2: SEBI’s interpretive guidance aims to foster transparency and compliance within the alternative investment landscape, promoting investor confidence and market integrity.

Q3: Are SEBI’s views expressed in the guidance applicable to all laws and regulations?

A3: It’s essential to note that SEBI’s views expressed herein are specific to the query raised and do not affect the applicability of other laws, regulations, guidelines, or circulars administered by SEBI or any other authority.