SEBI mulls prohibiting differential rights to alternative investment fund investors
MARKETS regulator SEBI on Wednesday proposed that AIF (alternative investment fund) investors should not be given any differential treatment, which affects the economic rights of other investors. In addition, the regulator is looking to provide clarity on the pro-rata rights of investors in an AIF scheme. AIF is a privately pooled investment vehicle, which collects funds from investors, for investing under a defined investment policy for the benefit of its investors. In its consultation paper, SEBI suggested that no differential rights should be provided to investors of the alternative investment fund/scheme, which would affect the economic rights of other investors. However, this should 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 fee. With respect to the pro-rata rights of investors, the regulator recommended that the rights of each investor should be maintained at pro-rata to their commitment to the scheme, in each investment of the scheme, while making an investment. Besides, the rights of each investor should be maintained at pro-rata to the investment made in the investee company, while distributing the proceeds of the investment.
Further, the manager can charge a performance-linked fee as per the terms of the contribution agreement with each investor. “While 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 alternative investment fund in the investee company shall not be utilised directly or indirectly to repay any pending obligations to the manager/sponsor or their
associates,” the regulator further said.