Sebi moots relaxation in valuation norms for alternative investment fund

In its consultation paper, Sebi suggested that valuation of securities such as unlisted securities, non-traded, thinly-traded and those below investment grade, under (MF) should not apply and these securities should be valued as per the .

For valuation of securities, other than unlisted securities, it has been proposed that valuation norms should be carried out as per the norms prescribed under MF regulations.

It further said that the valuation norms under the MF regulations cannot be applied to private instruments held by AIFs, since the valuation process is a rule based framework that follows a series of processes around pricing for investments in open-ended vehicles.

AIFs mostly hold 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.

In addition, Sebi has suggested that a change in valuation methodology or approach should not be construed as a 'material change', which can significantly influence the decision of the investor to continue to be invested in the scheme of the AIF. Consequently, AIFs should not be required to follow the process of providing an exit to dissenting investors.

On eligibility criteria for independent valuer for a partnership entity or company, Sebi proposed that such an entity or company should be a registered valuer entity registered with Insolvency and Board of India Board (IBBI) and the authorised person of such registered valuer entity, who undertakes the valuation of investment portfolio of AIFs, should have a membership of or .

"AIFs shall provide audited data on cash flows and valuation of their scheme-wise investments, after the audit of books of accounts of the AIF ...of AIF Regulations, to Performance Benchmarking Agencies within 7 months from March 31, i.e., by October 31 of each year," Sebi suggested.