SEBI issues norms for alternative investment funds

The Securities and Exchange Board of India (SEBI) has issued a circular detailing operational, prudential and reporting norms for alternative investment funds (AIFs).

Alternative investment funds are such funds established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate, which is a privately pooled investment vehicle, which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors and are not covered under the SEBI (Mutual Funds) Regulations.

Accordingly, all AIFs belonging to Category I, II and III not leveraging funds are required to report to SEBI on a quarterly basis while those AIFs which employ leverage should do so on a monthly basis.

Category III AIFs should have to additionally comply with norms pertaining to risk management, compliance, redemption and leverage.

The leverage for a Category III AIF should not exceed two times, ie, the gross exposure after offsetting for hedging and portfolio rebalancing transactions, the NAV of the fund.

Category III AIFs may leverage or borrow subject to consent from the investors and subject to a maximum limit, as may be specified by SEBI.

Category III AIFS will be regulated through issuance of directions regarding areas such as operational standards, conduct of business rules, prudential requirements, restrictions on redemption and conflict of interest as may be specified.

Further, SEBI may at any time call upon the AIF to file such reports, as the board may desire, with respect to the activities carried on by the AIF.

SEBI has directed all Category III AIFs, which employ leverage, to have a comprehensive risk management framework supported by an independent risk management function, appropriate to the size, complexity and risk profile of the fund.

They should have a strong and independent compliance function appropriate to the size, complexity and risk profile of the fund supported by sound and controlled operations and infrastructure, adequate resources and checks and balances in operations

They should also maintain appropriate records of the trades /transactions performed and such information should be made available to SEBI, whenever sought.

THE AIFs should provide full disclosure and transparency about conflicts of interest and how they manage them from time to time to investors in accordance with Regulation 21 of the AIF Regulations and any other guidelines as may be specified by SEBI from time to time. Such conflicts should be disclosed to the investors in the placement memorandum and by separate correspondences as and when such conflicts arise.

Such information should also be disclosed to SEBI as and when required by the board.

AIFs should submit the reports online through the online reporting system provided by SEBI.

However, till such online system is made available, reports may be sent by email to aifreporting@sebi.gov.in.

Once the online system is made available by SEBI, no reports should be sent by email. Further, SEBI has advised AIFs not to file physical reports.

The reports for the period up to the quarter ended 30 June 2013 for AIFs, which are already registered with SEBI, should be sent vide email to the aforesaid email address within one month from the date of the circular, SEBI said.

Reports should be submitted within seven days from the end of quarter/end of month as the case maybe.