The Securities and Exchange Board of India (SEBI) on May 23, 2023, issued a Consultation Paper on the proposal with respect to pro-rata and pari-passu rights of investors of Alternative Investment Funds (AIFs)
The objective of this consultation is to seek comments and inputs from stakeholders and the public on the proposal to provide clarity in SEBI (Alternative Investment Funds) Regulations, 2012, regarding maintaining pro-rata and pari-passu rights of investors of AIFs.
The following has been stated namely: -
• With respect to pro-rata rights of investors, the following is being proposed namely: -
(i) The rights of each investor shall be maintained
(a) pro-rata to their commitment to the scheme, in each investment of the scheme, while making an investment.
(b) pro-rata to the investment made in the investee company, while distributing the proceeds of the investment. Provided that the manager may charge a performance-linked fee per the contribution agreement terms with each investor.
(ii) While the manager/sponsor may continue to have differential distribution to bear loss more than their pro-rata-holding, the same is subject to the condition that the amount invested by the AIF in the investee company shall not be utilized directly or indirectly to repay any pending obligations to the manager/sponsor or their associates.
(iii) Existing schemes of AIFs that have adopted a priority distribution model may continue with the existing investments, but shall not accept any fresh commitment or make an investment in a new investee company.
• With respect to pari-passu rights of investors, the following is proposed namely: -
(i) All investors of the AIF/scheme shall be treated equally with respect to the economic rights of the investors ie., no differential rights shall be provided to investors of AIF/scheme which would affect the economic rights of other investors
(ii) The aforesaid provision shall not apply in case of differential rights provided on terms with respect to the hurdle rate of return, performance-linked fee/additional return, and management fees.
• Public comments are invited for the proposal given above. The comments/suggestions may be provided in an MS Excel file per the attached format.
• Comments as per the format may be latest by June 04, 2023, in any of the following manners namely: -
(i) Preferably by email to [email protected], with a copy to Ms. Padma Bharathi S, Manager ([email protected])
(ii) By post to: Shri Sanjay Singh Bhati, Deputy General Manager, Alternative Investment Fund and Foreign Portfolio Investors Department, Securities and Exchange Board of India, SEBI Bhavan, C4-A, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai -400051
