SEBI introduces guidelines for ‘Large Value Fund’ for accredited investors

Prabhat Nigam

13 Sep, 2022

On 24^th June 2022, vide circular number SEBI/HO/AFD/RAC/CIR/2022/088, a Circular was issued by Securities and Exchange Board of India (SEBI) wherein SEBI released guidelines for Large Value Fund for accredited Investors under AIF Regulations, 2012 and requirement of a compliance officer for Managers of all the AIFs.  

Who are the players to whom circular on guidelines for Large Value Fund for accredited Investors under AIF Regulations, 2012 is applicable?  

The Circular titled “guidelines for Large Value Fund for accredited Investors under AIF Regulations, 2012 and requirement of a compliance officer for Managers of all the AIFs” is applicable to: 

All the Alternative Investment Funds (AIFs)  

What is a Large Value Fund (LVF) for an accredited investor?  

A Large Value Fund (LVF) for an accredited investor is an Alternative Investment Fund (AIF) or a scheme of an AIF wherein every investor is an accredited investor and invests a minimum amount of Rupees 70 crore. Here, the investor does not include a manager, employees, directors or sponsors of the AIF or the employees or directors of the manager.  

Highlights of the Circular on guidelines for Large Value Fund for accredited Investors under AIF Regulations, 2012     

Background  

After introducing the concept of “Accredited Investors” in the securities market, SEBI (Alternative Investment Funds) Regulations 2012 have been amended to offer some relaxations from regulatory requirements to ‘Large Value Fund for Accredited Investors (LVF)’. 

Procedure of filing of LVF schemes with SEBI  

According to the proviso of Regulation 12 of the AIF Regulations, LVFs have been exempt from filing their placement memorandum with SEBI through Merchant Banker and also from incorporating comments of SEBI in their placement memorandum. In short, the LVFs can launch their scheme under intimation to SEBI.  

At the time of filing the placement memorandum for the LVF schemes with SEBI, both the CEO of the Manager to AIF (or a person of equivalent position or role depending on the legal structure of the Manager) and the Compliance Officer of the Manager to the AIF have to submit a duly signed and stamped undertaking in the prescribed format.  

Where the LVF schemes have already been filed with SEBI, a similar undertaking duly signed and stamped by both the CEO of the Manager to the AIF (or a person of equivalent position or role depending on the legal structure of the Manager) and the Compliance Officer of the Manager to the AIF will be submitted to SEBI on or before the date of 31^st July 2022.   

Permission to extend tenure beyond two years 

The close ended AIFs have been permitted to extend their tenure up to two years under Regulation 13(4) of the AIF Regulations. This can be done with approval of two-third of its unit holders by value of their investment in the said AIF. Additionally, Regulation 13(4) of the AIF Regulations permits LVF to extend its tenure beyond two years subject to terms of contribution agreement, other fund documents and other such conditions that the Board may specify from time to time. For these purposes, it has been specified as under:  

1. With regards to extension of tenure beyond two years, SEBI said that the contribution agreement, placement memorandum and other fund documents need to incorporate terms and conditions for the extension of tenure beyond two years so that investors can take an informed decision.  

2. Approval have to be taken by the LVF from its Trustee/Designated partners/ Board of Directors (depending on the legal structure of the LVF) in order to extend the tenure beyond two years. Such approval has to be taken one month before the expiration of fund tenure or extended tenure. 

3. Where the required conditions to be specified in the contribution agreement, placement memorandum and other fund documents of LVF for the extension of tenure beyond two years have not been fulfilled, LVF shall liquidate and wind up according to the AIF Regulations and Circulars issued thereunder.   

Requirement of a Compliance Officer for Managers of all the AIFs 

All the AIFs need to ensure that a Manager to an AIF designates a director or an employee as the Compliance Officer who shall be a person other than the Chief Executive Officer (CEO) of the Manager (or such equivalent position or role depending on the legal structure of the Manager).  

Such Compliance Officer shall be obligated to monitor compliance by the Manager with the applicable provisions of the SEBI Act, AIF Regulations and Circulars that have been issued thereunder.  

Date of coming into effect 

The provisions of this Circular shall come into effect from 15^th July 2022 itself and all Mutual Funds & Asset Management Companies need to comply with modified cyber security framework according to the prescribed modifications.    

Conclusion  

It was only last year that the watchdog introduced the concept of ‘accredited investors’ in the Indian securities market in order to open a new channel of raising funds. This Circular on guidelines for Large Value Fund for accredited Investors under AIF Regulations, 2012 and requirement of a compliance officer for Managers of all the AIFs has been issued in exercise of the powers conferred on SEBI under s. 11(1) of the SEBI Act, 1992^[1] in order to protect the interests of the investors in the securities and also to promote the development and regulation of the securities market.   

Read our Article:Rules for Category III AIFs and Co-Investment by Investors of Alternative Investment Funds