SEBI Issues Consultation Paper to Provide Flexibility in Handling Unliquidated Investments By AIFs & VCFs

Consultation Paper dated 12.01.2024

The SEBI has floated a consultation paper on providing flexibility to AIFs, VCFs and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure. It has been proposed to allow schemes of AIFs to enter into a dissolution period/process to deal with unliquidated investments of their schemes upon completion of tenure, without the requirement of launching a liquidation scheme.

However, the value of the sale of such investments to the Liquidation Scheme to ensure proper recognition and disclosure of true asset quality, liquidity, and fund performance of AIFs and their manager are to be recognized as per norms specified by SEBI.

Further, SEBI aims to provide flexibility to AIF to deal with unliquidated investments within the same scheme of AIF instead of the requirement of launching new scheme w.r.t. certain concerns.

Similarly, SEBI is in plan to provide one-time flexibility to schemes of AIF, whose liquidation period has expired to deal with unliquidated investments. In this context, flexibility must be provided to such schemes of AIFs, whose liquidation period has expired in the past and have not been able to fully liquidate their investments due to operational difficulties in dealing with unliquidated investments.

Thereafter, SEBI has proposed to extend the flexibility of the dissolution period / process to VCFs through migration to AIF regime to facilitate and regulate all types of privately pooled investment vehicles which are established in India and are raising funds from Indian or foreign investors & notified as on 21.05.2012.

Simultaneously, SEBI constraints in the regulatory framework for VCFs and benefits to VCFs on migration to the AIF scheme. The VCF Regulations state that the Private Placement Memorandum must contain ‘the period of maturity, if any, of the fund’ beyond which the tenure of scheme cannot be extended.

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