Regulatory updates

A Private Placement Memorandum (PPM) is a primary document that entails all the necessary information about an AIF- this information is imperative for the investors in the AIF.

The Securities and Exchange Board of India (SEBI) vide the SEBI (Alternative Investment Fund) Regulations, 2012 (AIF Regulations) read with the Master Circular for AIFs¹SEBI Master Circular No. SEBI/HO/AFD/PoD1/P/CIR/2023/130 dated 31 July 2023. has prescribed certain compliances with the PPM, which inter alia include annual compliance audit with the PPM and communication of changes in terms of PPM. With an aim to facilitate ease of doing business, rationalizing cost and promoting uniform compliance standards, the SEBI has issued certain amendments pertaining to PPM. These changes are given below:

Changes in the terms of private placement memorandum of AIFs

As per the SEBI Master Circular for AIFs, any change to the terms of a PPM is required to be submitted to SEBI through a merchant banker along with a due diligence certificate from the merchant banker in the format specified by SEBI. With a view to ease compliances for AIFs, SEBI issued a circular dated 29 April 2024, prescribing a list of changes to the terms of the PPM²The changes in terms of the PPM that may directly be communicated by the AIFs to SEBI are given in Annexure A to this circular., which can be filed directly with SEBI without the involvement of a merchant banker.

Exemption from filing all changes through a merchant banker applicable to Large Value Fund for Accredited Investors (LVFs): LVFs are exempted from the requirement of intimating any changes in the terms of PPM through a merchant banker. LVFs can directly file any changes in the terms of PPM with SEBI, along with a duly signed and stamped undertaking by Chief Executive Officer (CEO) of the Manager of the AIF (or person holding equivalent role or position depending on the legal structure of Manager) and Compliance Officer of Manager of the AIF, in a format as specified at Annexure B of the circular.

To access the text of the circular issued, please click here

Standardisation of Private Placement Memorandum (PPM) audit report

As per the existing regulations³ Regulation 28 of SEBI (AIF) Regulations, 2012 and Clause 2.4 of SEBI Master Circular SEBI/HO/AFD/PoD1/P/CIR/2023/130 dated 31 July 2023 (Master Circular) , AIFs are required to ensure that they get an annual audit of compliance with the terms of the PPM done for the AIFs and submit the audit report to certain stakeholders⁴ Stakeholders include:
- The trustee or board of directors or designated partners of the AIF,
- Board of directors or designated partners of the Manager and
- SEBI within six months from the end of the financial year.

In order to achieve uniform compliance reporting, on 18 April 2024, SEBI has issued a circular stating that a standard reporting format for PPM audit report applicable to various categories of AIFs has been prepared in consultation with the Standard Setting Forum for AIFs (SFA). The AIF Associations that form a part of the SFA would host the format of the revised PPM audit report on their websites within two working days of issuance of this circular.

The reporting requirements are applicable for PPM audit reports to be filed for the financial year ending 31 March 2024 and onwards.

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To access the text of the circular issued, please click here

On 25 April 2024, SEBI notified the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024 (AIF Amendment Regulations) that aims to enhance the regulatory framework and revises the operational standards for AIFs.

Some of the key amendments are as follows:

Additional definitions – The terms ‘Dissolution Period’ and ‘Encumbrance’ have been defined in regulation 2(1) of the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations)⁵ dissolution period” means the period following the expiry of the liquidation period of the scheme for the purpose of liquidating the unliquidated investments of the scheme of the Alternative Investment Fund. “encumbrance” shall have the same meaning as assigned to it under Chapter V of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. . The definition of dissolution period and other guidance on dissolution would enable a regulated and transparent winding up process for AIFs.

Encumbrance on equity - Category I and II of AIFs are now permitted to create encumbrances on the equity of investee companies only for the purpose of borrowing by such investee company under specified conditions, providing them with greater leverage options. SEBI has issued a detailed circular⁶SEBI circular no. SEBI/HO/AFD/PoD1/CIR/2024/027 dated 26 April 2024 in this regard dated 26 April 2024, to access the text of this circular,To access the text of the 2024 Rules, please click here.

Unliquidated investments AIFs are provided with more flexibility in dealing with unliquidated investments during the liquidation period, including the distribution of these investments to investors. SEBI has issued detailed circular⁷SEBI circular no. SEBI/HO/AFD/PoD1/CIR/2024/026 dated 26 April 2024. in this regard dated 26 April 2024, to access the text of this circular, To access the text of the circular issued, please click here.

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To access the text of the AIF Amendment Regulations, please click here