The Securities and Exchange Board of India (“SEBI”), by way of its circular dated June 24, 2022 has issued new guidelines (“Guidelines”) for Large Value Funds for Accredited Investors (“LVFs”) under the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”). The AIF Regulations define LVFs as an AIF or a scheme of an AIF in which each investor (other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager) is an accredited investor and invests not less than Rs. 70,00,00,000/- (Rupees seventy crore).
The Guidelines also require managers of all AIFs to designate a compliance officer. The guidelines are as follows:
A. GUIDELINES FOR LVFS
Regulation 12 of AIF regulations provides that an AIF may launch schemes subject to filing of a placement memorandum with SEBI through a merchant banker atleast 30 (thirty) days prior to the launch of scheme along with the fees as specified. Post filing of the placement memorandum, SEBI may communicate its comments and the same may be incorporated into the placement memorandum prior to the launch of the scheme. The proviso to Regulation 12 exempts LVFs from receiving and incorporating such comments, consequently, mere intimation by way of filing the placement memorandum with SEBI.
It has now been prescribed that while filing the placement memorandum for LVF Schemes with SEBI, the LVF shall also provide a duly signed and stamped undertaking by the CEO of the Manager to the AIF (or a person holding equivalent role or position depending on the legal structure of Manager) and the Compliance Officer of the Manager to the AIF in the format as provided in Annexure A to the Guidelines.
Furthermore, for LVF Schemes which have already filed private placement memorandums with SEBI, the abovementioned undertaking shall be submitted to SEBI on or before July 31, 2022.
As per Regulation 13(4) of the AIF Regulations, extension of tenure of close ended AIFs may be permitted for up to 2 (two) years subject to approval of 2/3 (two third) of the unit holders by value of their investment in the AIF. However, LVFs may be permitted to extend their period beyond 2 (two) years, subject to the terms of the contribution agreement, other fund documents and such conditions as may be specified by the SEBI from time to time.
In relation to the abovementioned exemption provided to LVFs, the Guidelines provide as under:
i) The placement memorandum, contribution agreement and other fund documents of LVF shall lay down terms and conditions for extension of the tenure beyond two years;
ii) The LVF shall be required to obtain approval from its Trustee/Board of Directors/Designated Partners, depending on the legal structure of the LVF, for extending the tenure beyond 2 (two) years. This approval shall be obtained atleast 1 (one) month before expiration of the fund tenure or extended tenure; and
iii) In case of non-fulfilment of the requisite conditions referred to in a. above, LVF shall liquidate and wind up in accordance with AIF Regulations and Circulars issued thereunder.
B. REQUIREMENT OF COMPLIANCE OFFICER FOR MANAGERS OF ALL AIFs
All AIFs shall ensure that an employee or director is designated as a Compliance Officer by the Manager to the AIF. The Compliance Officer shall be a person other than the CEO of the Manager (or an equivalent position depending on the legal structure of the Manager). As the name suggests, the compliance officer shall be responsible for ensuring compliance of the AIF with the SEBI laws applicable to AIFs.
Please find a copy of the Guidelines, here.
This update has been contributed by Aryan Mohindroo (Associate).
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