The capital markets regulator Sebi is now mulling a plan to permit Alternative Investment Funds (AIFs) to extend by two more years the lifecycle of investment products that are set to be wound up, reported Economic Times.
Several PE and venture capital funds that are in the last few months of their lifecycle are finding it challenging to offload unlisted investments with liquidity conditions tightening.
Under the current rules, a close-ended AIF can have a fund life of minimum three and maximum 10 years.
However, this 10-year period can be further extended by two more years if the AIF obtains the consent of investors. Sebi is mulling an extension of another two years beyond this.
This implies a total fund life of 14 years. However, the Sebi move may come with caveats.
One of the key proposals being considered by Sebi is the rollout of higher investor consent thresholds for extending fund life — two-thirds support for the first two years of extension, three-fourths for the third and 90 percent for the fourth.
“Keeping the liquidity conditions of unlisted markets in mind, Sebi plans to issue operating procedures for such extension,” said one of the persons cited above.
“Until now, Sebi has been giving extensions on a case-to-case basis but these new rules will allow all AIFs to benefit from the changes.” Sebi didn’t respond to queries.
AIFs scheduled to wind up in the next few months have been struggling to sell their holdings in unlisted ventures and start-ups, as investors stay clear of risky investments.
The impact is largely on Category I and Category II AIFs, which typically invest in unlisted securities, apart from the debt market. Most of these AIFs are either not keen to sell their holdings or have been unable to find buyers at desired valuations because of liquidity related challenges.