Markets regulator SEBI has amended norms pertaining to alternative investment funds (AIFs), to make the role of the investment committee more prominent while approving investment decisions.
“The members of the investment committee shall be equally responsible as the manager for investment decisions of the alternative investment fund,” SEBI said.
The key investment team of the AIF manager should have adequate experience, with at least one key personnel having not less than five years of experience in advising or managing pools of capital or in fund or asset or wealth or portfolio management or inthe business of buying, selling and dealing of securities or other financial assets
“The manager and members of the investment committee shall jointly and severally ensure that the investments of the AIF are in compliance with the provisions of these regulations, the terms of the placement memorandum, agreement made with the investor, any other fund documents and any other applicable law,” SEBI said.
Tushar Sachade, Partner, Tax and Regulatory Services, PwC India said: "Through this notification, SEBI is addressing a couple of issues. The earlier AIF regulations required one of the key persons to have relevant professional qualification, however, there was no clarity to the nature of professional qualification required. Through this notification, SEBI has brought in much needed clarity on the required professional qualification.
The role of the Investment Committee (IC) in the fund governance process is well known internationally. SEBI has now recognized the role of the IC and accepted that the final approval for the investment can be in the hands of the IC after the investment decision is taken by the Investment Manager. However, the regulation requires that the Investment Manager and the IC members take joint and several responsibilities for the investment decision making, compliance with the AIF regulations and compliance with the fund documentations. This may become extremely onerous for IC members which usually include the anchor investor, independent experts, etc.
Additionally, SEBI needs to clarify that these changes are not applicable to existing funds which may have a different governance process".
Jay Gandhi, Partner, Investment Funds, Private Equity and M&A at Shardul Amarchand Mangaldas & Co said, “In a significant development, the SEBI has for the first time formally recognized the role of members of the Investment Committee of an AIF in investment decision making for AIFs. Having said that, the amendment does seem to enhance the responsibilities of the members of the Investment Committees on AIFs from what it would have been in accordance with past market practice.”