Listen to this article
SEBI has proposed some relaxation in the valuation framework of AIFs.
This has come after representatives from the AIF industry highlighted issues with the existing valuation framework of AIFs.
Currently, AIFs follows SEBI Mutual Fund Regulations to arrive at valuation of securities. However, this framework has certain limitations; for instance, mutual funds hold securities that are ‘available for sale’ whereas an AIF holds its investments as ‘hold till maturity’.
Based on the recommendations of the AIF industry, SEBI proposes:
- Valuation of listed securities should continue to be in line with the valuation norms for mutual funds. However, the valuation of unlisted securities should be done basis the International Private Equity and Venture Capital Valuation (IPEV) guidelines endorsed by the AIF industry
- Change in the valuation methodology/approach for AIFs should not be considered as a ‘material change’. However, the valuation done by both old and new approaches should be disclosed to the investors to ensure transparency
- The valuation agency should be registered with Insolvency and Bankruptcy Board of India (IBBI) to be considered an independent valuer
- The authorized person of such an agency who does the valuation of AIFs must be a member of Institute of Chartered Accountants of India (ICAI) or Institute of Company Secretaries of India (ICSI) or Institute of Cost Accountants of India (ICMAI) or Chartered Financial Analyst (CFA) Institute
- AIFs should provide audited data on cash flows and valuation of their schemes-wise investments to performance benchmarking agencies within 7 months from the end of the financial year. Presently, the timeline is 6 months from the end of the financial year
You can submit comments on these proposals by June 13 on SEBI’s website.