SEBI received representations from the AIF industry highlighting issues with regard to certain aspects of the valuation framework for AIFs. In this regard, based on the public comments on consultation paper on “review of certain aspects of the framework for valuation of investment portfolio of AIFs”, recommendations of AIPAC and internal deliberations, the following has been decided:
Clause 22.1.1 Modification:
It focuses on the valuation of securities (excluding unlisted, non-traded, or thinly traded securities) as per norms under the SEBI (Mutual Funds) Regulations, 1996.
Clause 22.1.2 Clarification:
Securities not covered under Clause 22.1.1 are to be valued as per guidelines endorsed by an AIF industry association that represents at least 33% of SEBI-registered AIFs. These guidelines must take into account recommendations from SEBI’s Alternative Investment Policy Advisory Committee.
The aim is to standardize valuation norms for thinly traded and non-traded securities across entities within SEBI’s purview by March 31, 2025. This is intended to bring consistency in the valuation of AIF investment portfolios.
Clause 22.2.2 Modification:
Any change in the valuation methodology or approach in order to comply with Clause 22.1 (i.e., the valuation of different types of securities) will not be considered a “Material Change.” This indicates that such changes do not require extensive disclosure or approval processes typically required for material changes.
Clause 22.2.3 Addition:
Any change in valuation methodology within the prescribed guidelines will also not be treated as a “Material Change.” However, both the old and new valuation results must be disclosed to investors to maintain transparency. This ensures that investors are informed of the impact of any changes in the valuation process, even though the change is not considered material.
Clause 22.3.4:
A new sub-clause defines the eligibility criteria for independent valuers who are involved in the valuation of AIF portfolios:
Entity or Company: Must be a ‘Registered Valuer Entity’ registered with the Insolvency and Bankruptcy Board of India (IBBI).
Deputed/Authorized Person(s): Must hold membership in one of the following:
- ICAI (Institute of Chartered Accountants of India)
- ICSI (Institute of Company Secretaries of India)
- ICMAI (Institute of Cost Accountants of India)
- CFA Charter from the CFA Institute.
This ensures that only qualified individuals from authorized entities can perform valuations, enhancing the quality and credibility of valuations.
Clause 22.4.1:
The deadline for AIFs to report their valuations to performance benchmarking agencies based on audited data has been extended from six months to seven months.
Modified Requirement: Managers of AIFs must ensure that investee companies provide their audited accounts in a timely manner (by March 31), allowing AIFs to submit their valuation reports by October 31 each year. This should be specified as a term in the subscription/investment agreement with investee companies.
This extra month allows AIFs more time to compile and report their audited valuation data accurately.
Compliance Test Report
The trustee/sponsor of the AIF must ensure that the “Compliance Test Report,” as specified in Chapter 15 of the master circular, also confirms compliance with these new provisions. This ensures that the new guidelines are incorporated into the overall compliance framework for AIFs.
The provisions of this circular shall come into force with immediate effect
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