SEBI Issues Guidelines w.r.t exclusion of Investors from Investing in Schemes of AIFs

Circular No. SEBI/HO/AFD-1/PoD/P/CIR/2023/053, Dated April 10, 2023

Earlier, the SEBI vide. Circular No. SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05, 2020, introduced template(s) for Private Placement Memorandum (PPM) for AIFs, to ensure that a minimum level of information is disclosed in a format that is simple and can be compared across different PPMs.

The disclosed information in PPMs highlighted certain inconsistencies and insufficient disclosures regarding industry practices. As a result, the Alternative Investment Policy Advisory Committee (AIPAC) considered a proposal to examine the information disclosed under the term ‘Excuse and Exclusion,’ which allows investors to be excused or excluded from investing in the AIF.

Accordingly, the SEBI has decided to allow an AIF to exempt its investor from participating in a specific investment based on the recommendations put forth by AIPAC, in the following circumstances:

a) If a legal professional/legal advisor provides an opinion that confirms an investor’s participation in the investment opportunity would be in violation of an applicable law or regulation, the investor should refrain from participating; or

b) The manager must ensure that investors who disclose that their participation in an investment opportunity would violate their internal policy are required to report any changes to the policy to the AIF within 15 days.

Further, AIF can exclude an investor if their participation would break the law or harm the AIF scheme. And If an AIF investor is also an AIF or other investment vehicle, they may be partially excluded from participating in an investment opportunity, up to the amount contributed by excluded underlying investors. The Circular shall come into force with immediate effect.

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