Purpose of the Circular:
1. Streamline disclosure standards in the growing AIF space.
2. Introduced template for Private Placement Memorandum,
Template for Private Placement Memorandum
1. Private Placement Memorandum is a primary document in which all the necessary information about the AIF is disclosed to prospective investors.
2. To ensure that minimum standard of disclosure is made available in the Private Placement Memorandum.
3. To provide minimum level of information in a simple and comparable format.
4. AIFs are also required to provide additional information in their Private Placement memorandum.
5. The template of Private Placement Memorandum shall have two Parts-
6. Annual Audit
a. In order to compliance with the terms of PPM, it will be mandatory for AIFs to carry out an annual audit of such compliance.
b. The audit shall be carried out by either internal or external auditor/legal professional.
c. However audit of sections PPM relating to Risk factors, Legal regulatory and tax consideration and track record of the first time managers shall be optional.
7. Report of the Annual Audit
The findings of the audit, along with the corrective steps, if any, shall be report to-
ii. Board or designated partner of AIF,
iii. Board of Managers,
8. The terms of contribution or subscription agreement, shall be aligned with the terms of the PPM and shall not go beyond the terms of the PPM.
9. Effective date: 01.03.2020
Performance benchmarking of AIFs
10. An industry benchmark be developed to compare the performance of AIF industry against other investment avenue, as also global investment opportunities. Accordingly, a proposal for performance benchmarking of AIFs was incorporated in the aforesaid Consultation paper.
11. As the industry needs the flexibility to showcase its performance based on different criteria and benchmarking of performance of AIFs will help investors in assessing the performance of the AIF industry, it is decided to introduce:
a. Mandatory benchmarking of the performance of AIFs (including Venture Capital Funds) and the AIF industry.
b. A framework for facilitating the use of data collected by Benchmarking Agencies to provide customized performance reports
12. In this regard, the following is mandated:
(i) Any association of AIFs, which in terms of membership, represent at least 51% of the number of AIFs, may notify one or more Bench marking Agencies, with whom each AIF shall enter into an agreement for carrying out the bench marking process.
(ii) The agreement between the Bench marking Agencies and AIFs shall cover the mode and manner of data reporting, specific data that needs to be reported, terms including confidentiality in the manner in which the data received by the Bench marking Agencies may be used, etc.
(iii) AIFs, for all their schemes which have completed at least one year from the date of ‘First Close’, shall report all the necessary information including scheme-wise valuation and cash flow data to the Bench marking Agencies in a timely manner.
(iv) The form and format of reporting shall be mutually decided by the Association and the Bench marking Agencies.
(v) If an applicant claims a track-record on the basis of India performance of funds incorporated overseas, it shall also provide the data of the investments of the said funds in Indian companies to the Bench marking Agencies, when they seek registration as AIF.
(vi) In the PPM, as well as in any marketing or promotional or other material, where past performance of the AIF is mentioned, the performance versus benchmark report provided by the bench marking agencies for such AIF/Scheme shall also be provided.
(vii) In any reporting to the existing investors, if performance of the AIF/Scheme is compared to any benchmark, a copy of the performance versus benchmark report provided by the Bench marking Agency shall also be provided for such AIF/scheme.
(viii) As a first step, Association will appoint Bench marking Agencies and thereafter will set timeline for reporting of requisite data to Bench marking Agencies by all the registered AIFs. In this regard, Association and Bench marking Agencies will ensure that the first industry benchmark and AIF level performance versus Benchmark Reports are available latest by July 01, 2020, for the performance upto September 30, 2019. Further the Association shall submit a progress report in this regard to SEBI on a monthly basis till the creation of first industry benchmark.
Purpose of the Circular
it is clarified as under:
(i) Audit of compliance with terms of PPM as provided the Circular dated 05.02.2020 , shall be conducted at the end of each Financial Year and the findings of audit along with corrective steps, if any, shall be communicated to the Trustee or Board or Designated Partners of the AIF, Board of the Manager and SEBI, within 6 months from the end of the Financial Year.
(ii) The requirement of audit of compliance with terms of PPM shall not apply to AIFs which have not raised any funds from their investors. However, such AIFs shall submit a Certificate from a Chartered Accountant to the effect that no funds have been raised, within 6 months from the end of the Financial Year.
(iii) For the Financial Year 2019-20, the above requirements shall be fulfilled on or before December 31, 2020. the Circular is amended as under: “Any association of AIFs (“Association”), which in terms of membership, represents at least 33% of the number of AIFs, may notify one or more Bench marking Agencies, with whom each AIF shall enter into an agreement for carrying out the bench marking process.
In light of market events due to the COVID-19 pandemic, the timeline for making available the first industry benchmark and AIF level performance versus Benchmark Reports, is extended till October 01, 2020.