SEBI is considering a proposal to allow AIFs to extend the tenure of schemes

AIFs are like privately pooled investment vehicles that pool money from sophisticated investors. These are governed by SEBI regulations and are classified as Category – I, II, or III funds. Venture capital funds, private equity funds, real estate funds, and hedge funds are all types of AIFs.

At present, AIFs can extend the tenure of a scheme by two years with the approval of two-thirds of the investors based on the value of their investments in the AIF. Further, the AIF has the option to exclusively distribute the assets of the AIF after obtaining the approval of at least 75% of the investors as per the value of their investment in the AIF. An in-space transfer entails transferring the underlying securities to investors as an alternative to selling them and transferring them cash.

Data collected by SEBI reveals that the 2-year extension for 24 AIF schemes with a valuation of Rs. 3,037 crore will expire in FY 2023-24, and another 43 schemes with valuations of Rs. 13,450 crore will expire in the financial year 2024-25. In this context, SEBI is considering the option of further expansion. As per the release, the regulator has received requests from some AIFs on extension of tenure of the scheme due to liquidity crunch, legal and regulatory constraints etc.

As per the proposal, at the end of the tenure of the scheme of more than two years, the AIF may wind up the existing scheme and transfer the unspent investments to a new scheme with the consent of the investors of 75% of the value. Shifting to a new scheme would mean that the securities would continue to be managed by the AIF manager instead of being transferred to investors (under in-space transfer). But this will be subject to fulfillment of certain conditions including the following. In order to establish a reliable market value and closing valuation, the AIF will have to arrange bidding for at least 25% to provide exit to investors who do not wish to continue in the new scheme. The valuation done by two independent valuation agencies shall be disclosed to all the investors. If a minimum 25% bid is received from related parties or other existing investors, the same has to be disclosed to all investors.

Finally, if the consent of 75% of the investors by value is not obtained either for in-species distribution or for transfer to a new scheme, the manager shall mandatorily liquidate the investments at the liquidation value within one year of termination. will end