The capital market regulator, the Securities and Exchange Board of India’s move to allow alternative investment funds to offer co-investment opportunities will promote ease of doing business and open up fresh investment opportunities for high-net-worth investors.
With the objective of enhancing ease of doing business for AIFs, SEBI has amended rules to permit Category I and Category II AIFs to offer a co-investment facility to accredited investors by launching a separate co-investment scheme (CIV scheme) within AIF rules, according to its circular.
This is in addition to the co-investment currently being facilitated to investors of AIFs through portfolio managers (PMS route).
CIVs managed by AIFs under safeguards
SEBI said that co-investment through a CIV scheme would be carried out by the manager of Category I or Category II AIFs, subject to certain conditions.
What co-investment means in AIF parlance
In AIF industry parlance, co-investment refers to the offering of the investment opportunity to the investors for additional investment in unlisted securities of an investee company, where an AIF is also making or has invested.
Chirag Jain, CEO, Ashika Credit Capital, said SEBI’s move gives more ₹flexibility for AIFs as co-investment is a big positive for the industry and for investors.
It opens the door for investors to participate more meaningfully alongside funds, creating stronger partnerships and greater confidence in the ecosystem, he added.
Steps like these make investing not just more transparent, but also more inclusive, which is needed for sustainable growth in markets, he said.
SEBI mandates governance, ring-fenced accounts
To protect investors’ interests, SEBI has mandated AIF managers to file a memorandum outlining key terms of the co-investment, governance structures, and regulatory frameworks. Additionally, each CIV scheme is required to maintain a separate bank and demat account, with its assets ring-fenced from those of other schemes to ensure clear segregation.
Investors can invest in an investee company through CIV schemes up to three times their contribution via the AIF scheme.
AIF commitments cross ₹14 lakh crore
Meanwhile, the commitments raised by AIFs crossed the ₹14 lakh crore mark as of June-end, reflecting a growth of over 20 per cent compared to last year, according to the latest SEBI data.
Total commitments raised by Category I, II, and III AIFs were at ₹90,600 crore, ₹10.78 lakh crore, and ₹2.49 lakh crore, respectively.
The total funds raised by the industry were at ₹5.91 lakh crore, with Category II AIFs accounting for the largest share with ₹3.80 lakh crore.
Among the top-10 sectors that attracted AIF investments include real estate, IT/ITes, Financial Services, NFBCs and banks.