Brief Overview:
Clarity has been provided by way of amendment to the regulations stating that rights and distribution to the investors shall be pro rata to their commitment in the scheme of an AIF and in each investment made by the scheme of an AIF and in all other respects shall be pari-passu.
Technical Details:
The priority distribution model of an alternative investment fund (“AIF”) has been on the radar of the Securities and Exchange Board of India (“SEBI”). After multiple deliberations over the years, SEBI has now amended the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) to state the following:
1) Rights of investors of a scheme of an AIF, each investment of the scheme of an AIF and in distribution of proceeds of such investment, shall be pro-rata to their commitment to the scheme.
2) Other than the rights of investors of an AIF specified to be on a pro-rata to the investor commitment, shall be pari passu in all aspects.
3) Differential rights can be offered to select investors without affecting the rights of the other investors, as shall be specified by SEBI.
4) Existing schemes not having investment and distribution rights pro-rata to investor commitment or other rights as pari passu in all aspect, will be dealt in manner to be specified by SEBI.
The said amendment to the AIF Regulations shall be effective from 18th November 2024.
JC Takeaway:
In furtherance to SEBI’s view to ensure fair and equal treatment of investors of an AIF, SEBI has prohibited priority distribution model. However, we await to receive further instructions from SEBI on the method to provide differential rights.
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