Mumbai: The Securities and Exchange Board of India (Sebi) has proposed relaxation of rules on valuation of investment portfolio of alternative investment funds (AIFs).
These easing of norms relate to change in valuation methodology on material change, computing valuation of investment portfolio of AIFs, eligibility criteria of independent valuers to be appointed by AIFs and timeline for reporting valuation of investment portfolio by AIFs to performance benchmarking agencies.
“Sebi is in receipt of representations from the AIF industry highlighting issues with regard to certain aspects of the valuation framework for AIFs,” the regulator said in a discussion paper on Thursday.
The regulator said valuation of securities should be carried out as per mutual fund norms. However, valuation of unlisted securities should be done as per the International Private Equity and Venture Capital Valuation Guidelines (IPEV Guidelines).
The AIF industry submitted to Sebi that the valuation norms under the mutual fund regulations cannot be applied to private instruments held by AIFs as mutual funds follow a rule based framework.
Whereas, AIFs mostly hold private investments where one needs to delve into and present a fundamental valuation based on cash flows pertinent to the underwriting thesis, which mutual fund guidelines do not cover.
Besides, the fundamental difference between investments by a mutual fund and AIF is their holding period strategy. A MF holds its investments primarily as ‘Available for Sale’ while an AIF typically holds its investments as ‘Hold Till Maturity’.
“…it is seen from industry’s submissions that there are fundamental differences between MFs and AIFs on holding and valuing their investment portfolios. This becomes particularly stark, considering the variances in the nature of investments, duration for holding investments, open ended vs close ended nature of funds and frequency of valuation of investments,” Sebi said.
