ELP Corporate Update: AIFs to segregate and ring-fence assets and liabilities of each scheme | Parameters provided for first close, tenure and change of sponsor/manager
29 November 2022
Economic Laws Practice
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In an important change for the AIF industry, SEBI has mandated
that the assets and liabilities of each scheme of an AIF are
segregated and ring-fenced from other schemes of the AIF; and bank
accounts and securities accounts of each scheme are segregated and
ring-fenced. This will be an important change in scenarios where
multiple schemes are launched under same AIF structure. Further,
SEBI has provided guidelines on following:
- Timeline for declaration of First Close of schemes of
- Calculation of tenure of close-ended schemes of AIFs; and
- Fee for change in control of manager/sponsor or change in
manager/sponsor of AIFs
The aforementioned changes require existing AIFs which are not
in compliance as on November 17, 2022, to transition within certain
The changes are analysed below:
||Explanation and impact
|Segregation and ring-fencing of
The Investment manager and either (a) the
trustee or (b) the trustee company or (c) the Board of Directors or
(d) designated partners of the AIF, as the case may be, shall
- the assets and liabilities of each scheme of an AIF are
segregated and ring-fenced from other schemes of the AIF ; and
- bank accounts and securities accounts of each scheme are
segregated and ring-fenced.
The change will ensure that liabilities of one
scheme do not eat into assets of other schemes. However,
implementation of this would require fund managers to put in
necessary steps wherever required.
|Timeline for declaration of First Close of
schemes of AIFs
||SEBI has provided following with respect to how
that the first close of the scheme shall be declared by an AIF:
- The First Close of a scheme shall be declared not later than 12
months from the date of SEBI communication for taking the PPM of
the scheme on record.
- In case of open ended schemes of Category III AIFs, the First
Close shall refer to the close of their Initial Offer Period.
- Corpus of the scheme at the time of declaring its First Close
shall not be less than the minimum corpus prescribed in AIF
Regulations for the respective category/sub-category of the
- The commitment provided by sponsor or manager at the time of
declaration of First Close, to the extent to meet the aforesaid
minimum corpus requirement, shall not be reduced or withdrawn or
transferred, post First Close.
- Existing schemes of AIFs, who have not declared their First
Close, shall declare their First Close not later than 12 months
from November 17, 2022.
- Existing schemes of AIFs, whose private placement memorandum
("PPM") were taken on record prior to 12
months from November 17, 2022 and have not declared their First
Close, shall submit updated PPM with SEBI in the format specified
in SEBI circular SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05,
2020, through a SEBI registered merchant banker along with due
diligence certificate from the merchant banker as specified in
Annexure A of SEBI Circular SEBI/HO/IMD/IMD-I/DF6/P/CIR/2021/645
dated October 21, 2021 and such updated PPM shall be circulated to
investors before declaration of First Close
- The First Close of Large Value Fund for Accredited Investors
("LVF") scheme shall be declared not
later than 12 months from the date of grant of registration of the
AIF or date of filing of PPM of scheme with SEBI, whichever is
- Existing LVF schemes shall declare their First Close not later
than 12 months from November 17, 2022.
- In case the First Close of a scheme is not declared within the
timeline prescribed above, the AIF shall file a fresh application
for launch of the said scheme as per applicable provisions of AIF
Regulations by paying requisite fee to SEBI.
|Calculation of tenure of close-ended
schemes of AIFs
Following has bene provided by SEBI on the manner of calculating
the tenure of a close ended scheme of an AIF, including the manner
of modification of the tenure:
- The tenure of close ended schemes of AIFs shall be calculated
from the date of declaration of the First Close.
- An AIF may modify the tenure of a scheme at any time before
declaration of its First Close. Prior to declaration of the First
Close, the investor may withdraw or reduce commitment provided to
such scheme of an AIF.
- Existing schemes of AIFs which have declared their First Close,
may continue to calculate their tenure from the date of Final Close
in terms of SEBI Circular CIR/IMD/DF/7/2015 dated October 1, 2015.
Such existing schemes of AIFs, which are yet to declare Final
Close, shall declare their Final Close as per the timeline provided
in the PPM of the scheme and the AIF/manager shall not have any
discretion to extend the said timeline provided in the PPM.
|Fee for change in control of
manager/sponsor or change in manager/sponsor of AIFs
In case of change of Sponsor or Manager, or change in control of
the AIF, Sponsor or Manager, prior approval from SEBI is required,
subject to levy of fees and any other conditions as may be
specified by SEBI from time to time. In this regard, the following
- A fee equivalent to the registration fee applicable to the
respective category / sub-category of the AIF, shall be levied in
case of change in control of manager/sponsor and in case of change
in manager/sponsor. The cost paid towards such fee by
manager/sponsor shall not be passed on to the investors of the AIF
in any manner.
- In case change in control of manager/change of manager and
change in control of sponsor/change of sponsor of an AIF is
proposed simultaneously, aforesaid fee equivalent to single
registration fee shall be levied.
- The aforesaid fee shall not be levied in the following cases
for change in sponsor or change in control of sponsor:
- The manager is acquiring control in or replacing the
- Exit of sponsor(s) in case of AIF having multiple
- The aforesaid fee shall be paid within 15 days of effecting the
proposed change in manager/sponsor or change in control of
- In case of the applications pending with SEBI as on November
17, 2022, for change in control of manager/sponsor or change in
manager/sponsor, the requirement of fee shall be applicable only in
those applications where none of the schemes of AIFs
managed/sponsored by manager/sponsor have declared their First
- The prior approval granted by SEBI in this regard shall be
valid for a period of 6 months from the date of SEBI communication
for the approval.
The changes have been notified vide SEBI (Alternative Investment
Funds) (Fourth Amendment) Regulations, 2022 dated November 15, 2022
available here), and Guidelines laid down/framed vide Circular
dated November 17, 2022 (
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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