Extension of Tenure for Large Value Close-Ended AIFs

The Securities Exchange Board of India (SEBI) is the proactive authority responsible for making necessary amendments regarding the extension of tenure for large-value close-ended AIFs for accredited investors. The constant upgrading of the old AIF (alternative investment funds) regime is crucial to efficiently align with the upgradation of the global competitive market.

Overview of Revised SEBI Regulations for Large Value Funds

On August 5, 2024, the Securities Exchange Board of India revised the regulation for the extension of tenure for large-value close-ended AIFs for accredited investors. It is notified as SEBI (Alternative Investment Funds) (Fourth Amendment) Regulations of 2024, which came into force on August 6, 2024, for the due amendment of SEBI (AIF) Regulations of 2012. The Fourth Amendment regulation instituted a new provision to regulation 13 (5) for the extension of tenure for large-value close-ended AIFs for accredited investors.

Who is a Large Value Close-Ended AIF for Accredited Investors?

Large value close-end AIFs for large accredited investors are registered Alternative Investment Funds or schemes under AIF, wherein investors (other than manager sponsor, employee, or director of AIF) are accredited investors who invest a minimum amount of Rs. 70 crores. Earlier, the large value funds (LVFs) were more flexible in extending tenures outlined in their private placement memorandums (PPMs).

Key Objectives of Revised SEBI Norms for Large Value Funds

The key objectives of revising and amending the SEBI (Alternative Investment Funds) Regulation of 2012 for large-value close-ended funds for accredited investors are as provided below:

• Clarify the purpose of category I and II of large-value AIFs for investors;
• AIFs to meet the shortfall in the drawdown amount called for from investors;
• Specify extension of tenure for large-value funds for accredited investors;
• Mention the cooling period between two borrowing periods;
• Place restriction on borrowing by Category I and II AIFs.

Tenure Extension for Large Value Funds for Accredited Investors

Earlier, the Securities Exchange Board of India granted permission to extend the tenure for large-value funds for accredited investors beyond two years. The permission for extension was granted subject to the terms of the contribution agreement, other fund documents, and conditions specified by SEBI.

After the 4th amendment, the Securities Exchange Board of India (SEBI- the market regulator) specified the maximum permissible limit outlining the extension of tenure for large-value close-ended AIFs for accredited investors. The tenure for large-value funds is extended up to a period of five years. It is subject to the following requirements:

• Approval of 2/3rd of unit holders by value of their investment in large value funds for accredited investors;
• Subject to such other conditions as specified by SEBI from time to time.

Extension of Tenure in Certain Situations

Also, the amendment to the SEBI (Alternative Investment Funds) Regulations of 2012 grants AIF the flexibility to decide upon the extension of the original tenure of the LVF scheme in the following situations as provided below:

• When market conditions are not favourable by the end of the original tenure,
• When investors are not clear about their investment horizon,
• When investments are affected due to constraints of the timeline of original tenure.

Conclusion

The SEBI outlined an amendment provision for a 5-year tenure extension for large-value close-ended AIFs for accredited investors. The tenure extension mainly aimed at clarifying the investment horizon for investors engaged in large-value funds for accredited investors. Now, existing schemes that allow for a longer extension are authorized to amend their PPMs to comply with the new 5-year limit.

Are you interested in the extension of tenure for large-value close-ended alternative investment funds? Visit www.enterslice.com to stay ahead and be a part of the changes. 

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