Sebi issues norms for AIF benchmarking

The Securities and Exchange Board of India (Sebi) has issued guidelines for benchmarking the performance of alternative investment funds (AIFS) with a view to streamlining disclosure standards and helping investors in assessing scheme performance.

The guidelines come two months after a consultation paper to this effect was floated by the regulator.

“As the industry needs flexibility to showcase its performance based on different criteria, benchmarking performance will help investors in assessing the performance of the AIF industry,” the regulator said in a note put out on Thursday.

The regulator has proposed that an association of AIFS with representation from at least 51 per cent of the industry select one or more benchmarking agencies.

The agreement between the benchmarking agencies and the AIFS should cover the mode and manner of data reporting, specific data that needs to be reported, and terms of confidentiality.

Benchmarking will apply to all schemes that have completed at least one year from the date of “First Close”. Funds incorporated overseas with India track record will also provide the data to the agencies when they seek registration as AIFS. Performance benchmarking will be done on a half-yearly basis, based on data as of September 30 and March 31 of each year. The performance and benchmark reports are to be available by July 1, 2020, on the outside for performance up to September 30, 2019.

“The introduction of performance benchmarking will enhance transparency among AIF investors, who can compare the performance of similar strategy schemes having the same vintage and thereby assess the relative performance of the management team while considering making investments,” said Subramaniam Krishnan, partner, EY India.

The regulator has also introduced a template for a private placement memorandum (PPM) to ensure minimum disclosure in a simple and comparable format. The PPM is a primary document in which necessary information about AIFS is disclosed to prospective investors. Further, in order to ensure compliance with the terms of the PPM, it will be mandatory for AIFS to carry out an annual audit of such compliance. The audit will be done by either an internal or external auditor/legal professional. Angel funds and Aifs/schemes, in which each investor commits to a minimum capital of ~70 crore or $10 million, will be exempt from the requirement of the PPM and audit.

“The introduction of performance benchmarking for AIFS will bring greater transparency to this growing asset class,” said Vaneesa Agrawal, founder, Thinking Legal. “The exclusion of angel funds from performance benchmarking is the right approach since decision making in an angel fund is with the investors themselves.”

Investments in AIFS have risen to ~1.25 trillion as of September 30 last year, with 65 per cent of the assets coming from category II funds.