SEBI limit AIF Schemes with priority distribution
Mumbai The Securities and Exchange Board of India (Sebi) has asked indispensable investment finances (AIFs) that have espoused a precedence distribution model in their schemes to not accept fresh commitments or make investments in new investee companies until the controller takes a stage on the subject.
At present, rules with respect to investment by the guarantor in the AIF say the sharing of loss by the guarantor shouldn’t be lower than pro rata to their holding in the AIF vis-a-vis other unit holders.
” While it has not been explicitly confined in AIF Regulations that the sharing of loss by a class of investors shall not be lower than pro rata to their holding in the AIF vis-a-vis other classes of investors unit holders, it has been brought to SEBI’s attention that certain schemes of AIFs have espoused a distribution cascade in such a way that one class of investors( other than guarantor/ director) shares loss further than pro rata to their holding in the AIF vis-a-vis other classes of investors/ un.
The controller said the matter is being examined by it in discussion with its Alternative Investment Policy premonitory commission, the AIF assiduity and other stakeholders.
” Whilst the elderly-inferior tranche structure was followed by a many AIFs, particularly the finances investing in debt securities, Sebi wasn’t in favour of similar structures. Whilst there was no express prohibition under the AIF Regulations confining similar structures, the nonsupervisory view was to permit the same only where the inferior or in some cases the first loss class was subscribed by the guarantor/ director and not by a set of third- party investors,” said Tejesh Chitlangi, Senior Partner, IC Universal Legal.” It seems Sebi may in future define needful checks and balances to permit certain precedence distribution structures rather of fully proscribing them,” Chitlangi said.
About SEBI (The Securities and Exchange Board of India)
Establishment Of SEBI
The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India. The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.
Preamble
The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”