Fund managers of alternative investment funds (AIFs) will now have to clear a certificate examination from the National Institute of Securities Market (NISM) to be eligible to run such funds.

At least one key personnel from the key investment team of the manager of an AIF will have to obtain a certification by passing the NISM Series-XIX-C: Alternative Investment Fund Managers Certification Examination, a gazette notification on Friday said.

The new norms may pose a fresh headache to existing fund managers as they will have to clear the examinations every three years, similar to what’s been mandated for registered investment advisors. “Even veteran fund managers, who may have busy schedules, may have to set aside a number of hours to study and clear the exam every three years, which may be taxing,” said an industry official.

Yashesh Ashar, Partner at Illume Advisory believes that the notification needs clarity with regard to applications already submitted and pending with SEBI as well as those proposed to be submitted in the near term. It is also not clear whether existing fund managers managing existing AIFs will have to give this exam.

Experience waiver

The regulator, however, has done away with the five-year experience criteria which, according to experts, had become somewhat subjective and come under regulatory scrutiny. The regulator, said officials, had come across managers providing false information about their profile, and had started asking for relieving letters and experience certificates. With the increase in the number of AIFs getting registered, hiring fund managers with relevant experience was becoming difficult.

The removal of the experience criteria would help first-time fund managers. Vaneesa Agrawal, Managing Partner at Thinking Legal, feels the introduction of a qualifying exam will help new fund managers who may not have experience managing pools of capital but have related experience and are keen to raise funds through an AIF structure. “The AIF manager can now employ a fresher as a fund manager and bring down the cost of managing a fund, which works in the favour of AIFs with a small corpus. The bright-line test for eligibility will help address the subjectivity that was associated with the experience criteria,” said Suneet Barve, Founder of SSB Legal.

The requirement for a certification was approved by the SEBI board in March last year. This was to facilitate skill-based approvals and to ensure objectivity in ascertaining eligibility for registration of AIFs.

In addition to passing the NISM exam, fund managers need to have a professional qualification in finance, economics, capital market or banking from a university or an institution recognised by the Central or State Government or a foreign university, or a CFA charter from the CFA Institute.