SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) CIRCULAR DATED 24 JUNE 2022 (CIRCULAR) ON (A) THE REQUIREMENT OF A COMPLIANCE OFFICER FOR MANAGERS OF ALL THE ALTERNATIVE INVESTMENT FUNDS (AIFS) AND (B) GUIDELINES FOR LARGE VALUE FUNDS FOR ACCREDITED INVESTORS (LVF) UNDER THE SEBI (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012 (AIF REGULATIONS)
A. Requirement of a compliance officer
As per the Circular, a manager to the AIF must designate an employee or a director as a ‘Compliance Officer’. Such compliance officer may be any person other than the chief executive officer (CEO) (or persons holding similar position) of the manager of the AIF. The compliance officer must monitor compliance of the AIF with provisions of the SEBI Act, AIF Regulations, and applicable circulars.
Earlier, the designation of a compliance officer was not mandatory, and the manager of the AIF was under a general obligation to monitor and comply with the provisions of applicable rules and regulations, terms of the placement memorandum, and other fund documents of the AIF.
B. Guidelines for LVFs
Under the AIF Regulations, certain relaxations from regulatory requirements are given to LVFs. An LVF means an AIF or a scheme thereof, where each external investor (i.e., investors not associated with the AIF) is an accredited investor and invests at least INR 70 crore.
The Circular prescribes new guidelines for LVFs in relation to filing of a placement memorandum with SEBI, and extension of tenure beyond an additional period of two years.
(i) Filing of LVF schemes with SEBI: Under the AIF Regulations, LVFs are exempted from filing their placement memorandum with SEBI through merchant bankers and incorporate comments received from SEBI into the placement memorandums, essentially meaning that LVFs may launch schemes by providing an intimation of the scheme documents to SEBI. Pursuant to the Circular, the intimation to SEBI with respect to new schemes, will have to be accompanied by an undertaking by the CEO and the compliance officer of the manager to the AIF, stating inter alia, that they have exercised due diligence in relation to the information contained in the placement memorandum. For already existing LVF schemes, the undertaking must be submitted to SEBI by 31 July 2022.
(ii) Extension of tenure beyond 2 years: Under the AIF Regulations, LVFs are not required to obtain unit holders’ consent for extension of its tenure beyond an additional period of 2 years, and such extension may be carried out in the manner permitted under contribution agreements entered between the LVF and the investors, other fund documents of the LVF, and conditions prescribed by SEBI. SEBI has, vide the Circular, prescribed the following conditions for such extension: (a) the placement memorandum, contribution agreement or other fund documents of LVF should provide the terms and conditions to be satisfied for extension beyond 2 years, and the investors should be aware of the same; and (b) LVFs shall obtain approval from its trustee / board of directors / designated partners for such extension, at least one month prior to the expiration of the tenure. In the event the prescribed conditions under the fund documents of the LVF are not fulfilled, the LVF must liquidate and wind up.
Authors: Souvik Ganguly, Akhil Ramesh, Aman Bagaria and Tanuj Modi
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