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SEBI directs AIFs to ring-fence belongings and liabilities of every scheme

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Market regulator, SEBI has mandated that belongings and liabilities of every scheme of an Various Funding Fund (AIF) have to be segregated and ring-fenced from different schemes of the Fund. 

Financial institution and securities accounts of every scheme must also be segregated and ring-fenced, SEBI stated in its newest modification to AIF Laws. 

The newest SEBI transfer is music to the ears of the non-public equity-venture capital business as it’ll permit AIF managers to launch a number of schemes and go to market faster. 

A protracted-standing challenge now stands resolved. SEBI has now mandated the segregation of schemes of AIF on the identical traces as these already prescribed for mutual funds.

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Until now, when a single scheme confronted legal responsibility, the query was whether or not the belongings of different schemes of an AIF could possibly be used to discharge that legal responsibility. This ambiguity had created friction for traders and AIF managers.

Siddarth Pai, Founding Accomplice 3one4 Capital and Co-Chair of the Regulatory Affairs committee at IVCA, stated that the brand new notification now states that the belongings and liabilities of the schemes of an AIF have to be ring-fenced and segregated, permitting AIF managers to launch a number of schemes and go to market faster. The business welcomes this readability and appears ahead to any additional working pointers that may elucidate the modification, Pai added.

He stated that the latest SEBI modification has given regulatory cowl for a long-standing follow of Indian AIFs and their schemes. 

Indian AIFs are allowed to launch a number of schemes as per the AIF Laws. Nonetheless, ambiguity existed because of the lack of language within the laws about every scheme being ring-fenced and separate from one another. 

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Thus, within the state of affairs {that a} single scheme of an AIF confronted a legal responsibility, the query was whether or not the belongings of the opposite schemes of the AIF could possibly be used to discharge this legal responsibility.

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This ambiguity created friction for traders and AIF managers, main many AIF managers to launch new AIFs, as a substitute of launching new schemes below the identical AIF. 

This elevated the complexity of compliance and prices for AIF managers, Pai stated. 

Subramaniam Krishnan, Accomplice-Personal Fairness Tax, Ernst & Younger LLP, stated the business was demanding an specific provision that regulatorily distinct schemes of an AIF must be construed as ring-fenced funding automobiles the place belongings and liabilities of 1 scheme can not profit/ affect one other scheme or its traders. 

“This has been essential for worldwide traders and has resulted in AIFs elevating substantial overseas capital to create new AIFs as a substitute of launching a number of schemes. With the newest SEBI modification, it could be attention-grabbing to see if it offers enough consolation to worldwide traders.”, he added.

First shut

In the meantime, SEBI has now amended the AIF Laws to introduce a timeline for the primary shut of an AIF scheme, which is now required to be declared inside a yr of the scheme being taken on file. This has additionally been prolonged to current schemes, which haven’t but declared their first shut.

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“Whereas this modification will present readability and consistency, given the challenges AIFs usually face to shut commitments (together with macro-level market modifications, anchor investor delays, base commitments required by Indian Fund of Fund traders, deferring launch to acquire the essential mass of commitments, pre-launch diligence, and so on), this might affect the business, notably first-time fund managers, who’re but to ascertain themselves available in the market”, Krishnan stated.

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