Evaluating performance of AIFs gets easy

In an effort to simplify performance disclosure standards in AIF space, SEBI has introduced new set of rules for AIF players to disclose performance across AIF categories. With this, AIFs players will now have to disclose performance of schemes with respect to benchmark in all marketing communication.

SEBI said that the mandatory benchmarking of the performance of AIFs is necessary to reduce mis-selling and help investors make informed decisions.

Here are the key highlights of the circular:

1. AIFs will now have to disclose their performance against their respective benchmark
2. AIFs to provide audited data on cash flows and valuation
3. Performance should be disclosed on six months basis i.e. as on September 30 and March 31 of each year
4. Performance reporting should be disclosed on pre-tax net NAV
5. Benchmarking agencies have to compile data from all AIFs separately since 2012
6. Performance disclosure should be reported in both INR and USD terms
7. Any AIF association representing 51% of AIF players will have to finalize the respective benchmark for each scheme. Also, the association has to decide the format in which the performance is disclosed
8. The association will have to set timeline to follow these reporting standards
9. The progress report on these reporting standards have to be submitted to SEBI each month
10. AIFs will have to disclose performance of their funds prominently in all marketing communication

Another key decision is to standardise private placement memorandum issued by AIFs to their clients. Private placement is sale of the fund’s units to a limited group of individuals. Typically, AIFs target affluent HNIs and UHNIs, foreign offshore investors and corporates. While any individual can invest in a mutual fund NFO or equity IPO independently, AIF investments are through offer only. Generally, an investor’s financial advisor at times accompanied by the AIF’s sales personnel share the placement memorandum (similar to an SID in mutual fund parlance) of the fund with prospective investors.

SEBI has issued two set of PPM templates for category I&II AIFs and category III AIFs. This will come into effect from March 1, 2020.