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The SEBI has notified Securities and Exchange Board of India (Alternative Investment Funds) (Fifth Amendment) Regulations, 2021 vide Notification No. SEBI/LAD-NRO/GN/2021/57 dated 09th November 2021 to amend the existing SEBI (Alternative Investment Funds) Regulations, 2012.

Applicability:

Date of publication: 10th November, 2021

– This set of regulations shall come into force on 13th day from the date of its publication in the Official Gazette;

– The amendments to Regulation 15(1)(d) shall come into force on the date of its publication in the Official Gazette. 

SEBI (Alternative Investment Funds) (Fifth Amendment) Regulations, 2021

Sr. No. Amendment Comments
1 Insertion: Regulation 2(1)(fa) 

“Co-investment” means investment made by a Manager or Sponsor or investor of Category I and II Alternative Investment Fund(s) in investee companies where such Category I or Category II Alternative Investment Fund(s) make investment:

Provided that Co-investment by investors of Alternative Investment Fund shall be through a Coinvestment Portfolio Manager as specified under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020;”

Vide this amendment, definition of co-investment is inserted in the Regulations which was not defined earlier.
2 Substitution: Regulation 15(1)(b) 

The terms of Co-investment in an investee company by a Manager or Sponsor or coinvestor, shall not be more favourable than the terms of investment of the Alternative Investment Fund:

Provided that the terms of exit from the Co-investment in an investee company including the timing of exit shall be identical to the terms applicable to that of exit of the Alternative Investment Fund:

Provided further that the above proviso shall be applicable only for co-investment made from the date of coming into force of this regulation.

Vide this amendment the following changes are introduced in the existing provisions:

a. To widen the scope, coinvestor is also added in addition to manager and sponsor;

b. 1st Proviso is added to provide that the terms of exit from the Co-investment shall be identical to the terms applicable to that of exit of the AIF;

c. 2nd Proviso is added to provide that the 1st proviso shall be applicable from the date of coming into force of this regulation.

3 Substitution: Regulation 15(1)(d) 

Category III Alternative Investment Funds shall invest not more than ten per cent of the net asset value in listed equity of an Investee Company and shall invest not more than ten per cent of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other Alternative Investment Funds:

Provided that large value funds for accredited investors of Category III Alternative Investment Funds may invest up to twenty per cent of the net asset value in listed equity of an Investee Company and may invest up to twenty per cent of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other Alternative Investment Funds.

In the existing provisions, Category III AIFs were required to invest not more than 10% of the investable funds in an Investee Company. However, vide this amendment, it is provided that Category III AIFs shall,

– invest not more than 10% (up to 20% in case of large value funds for accredited investors of Category III AIF) of the net asset value in listed equity of an Investee Company;

– invest not more than 10% (up to 20% in case of large value funds for accredited investors of Category III AIF) of the investable funds in securities other than listed equity of an Investee Company.

 

4 Insertion: Regulation 20(15) 

The manager shall not provide advisory services to any investor other than the clients of Coinvestment Portfolio Manager as specified in the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, for investment in securities of investee companies where the Alternative Investment Fund managed by it makes investment.

Insertion of sub-rule (15) is an addition to the General Obligations.

SECURITIES AND EXCHANGE BOARD OF INDIA

NOTIFICATION

Mumbai, the 9th November, 2021

SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) (FIFTH
AMENDMENT) REGULATIONS, 2021

SEBI/LAD-NRO/GN/2021/57.— In exercise of the powers conferred by section 30 read with clause (c) of sub-section (2) of section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, namely–

1. These Regulations may be called the Securities and Exchange Board of India (Alternative Investment Funds) (Fifth Amendment) Regulations, 2021.

2. They shall come into force on the thirtieth day from the date of their publication in the Official Gazette:

Provided that the amendments to clause (ii) of sub-regulation II of regulation 3 of these Regulations shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012,—

 I. After clause (f) of sub-regulation (1) of regulation 2, the following clause shall be inserted, namely,-

“(fa)“Co-investment” means investment made by a Manager or Sponsor or investor of Category I and II Alternative Investment Fund(s) in investee companies where such Category I or Category II Alternative Investment Fund(s) make investment:

Provided that Co-investment by investors of Alternative Investment Fund shall be through a Co-investment Portfolio Manager as specified under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020;”

II. in sub-regulation (1) of regulation 15,

i. clause (b) shall be substituted with the following, namely,-

“(b) The terms of Co-investment in an investee company by a Manager or Sponsor or co-investor, shall not be more favourable than the terms of investment of the Alternative Investment Fund:

Provided that the terms of exit from the Co-investment in an investee company including the timing of exit shall be identical to the terms applicable to that of exit of the Alternative Investment Fund:

Provided further that the above proviso shall be applicable only for co-investment made from the date of coming into force of this regulation;

ii. clause (d) shall be substituted with the following, namely,-

“(d) Category III Alternative Investment Funds shall invest not more than ten per cent of the net asset value in listed equity of an Investee Company and shall invest not more than ten per cent of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other Alternative Investment Funds:

Provided that large value funds for accredited investors of Category III Alternative Investment Funds may invest up to twenty per cent of the net asset value in listed equity of an Investee Company and may invest up to twenty per cent of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other Alternative Investment Funds;”

III. After sub-regulation (14) of regulation 20, the following shall be inserted, namely-

“(15) The manager shall not provide advisory services to any investor other than the clients of Co-investment Portfolio Manager as specified in the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, for investment in securities of investee companies where the Alternative Investment Fund managed by it makes investment.”

AJAY TYAGI ,Chairman

[ADVT.-III/4/Exty./411/2021-22]

Footnote:

1. The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 were published in the Gazette of India on May 21, 2012 vide No. SEBI/LAD-NRO/GN/2012-13/04/11262.

2. The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 were subsequently amended on,–

(1) 16th September, 2013 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2013 vide No. LAD -NRO/GN/2013-14/24/6573.

(2) 23rd May, 2014 by the Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/03/1089.

(3) 26th September, 2014 by the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/11/1576.

(4) 14th August, 2015 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2015 vide No. SEBI/LAD-NRO/GN/2015-16/011.

(5) 4th January, 2017 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2016 vide No. SEBI/LAD/NRO/GN/2016-17/026.

(6) 6th March, 2017 by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2017 vide No. SEBI/LAD/NRO/GN/2016-17/037.

(7) 1st June, 2018 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2018 vide No. SEBI/LAD/NRO/GN/2018/19.

(8) 10th May, 2019 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2019 vide No. SEBI/LAD/NRO/GN/2019/16.

(9) 17 April, 2020 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/10.

(10) 19th October, 2020 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2020 vide No. SEBI/LAD/NRO/GN/2020/37.

(11) 8th January, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2021 vide No. SEBI/LAD/NRO/GN/2021/01.

(12) 5th May, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2021 vide No SEBI/LAD-NRO/GN/2021/21.

(13) 3rd August, 2021 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30.

(14) 3rd August, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/33.

(15) 13th August, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Fourth Amendment) Regulations, 2021 vide No. SEBI.LAD-NRO/GN/2021/41

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Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at [email protected]

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