The Securities and Exchange Board of India (“SEBI”) has issued a notification bearing number SEBI/LAD-NRO/GN/2020/37 (“Amendment”) which amends the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“SEBI AIF Regulations”) with effect from October 19, 2020.  

Prior to the Amendment, the SEBI AIF Regulations required the key investment team of the investment manager of an alternative investment fund (“AIF”) to have 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 in the business of buying, selling and dealing of securities or other financial assets. Subsequent to the Amendment, the key investment team of an AIF’s investment manager is also required to have, at least one key personnel with a professional qualification in finance, accountancy, business management, commerce, economics, capital market or banking from a university or an institution recognized by the Central Government or any State Government or a foreign university, or a CFA charter from the CFA institute or any other qualification as may be specified by SEBI. The Amendment provides that these two requirements may be fulfilled by the same person. 

Thought it is common for AIFs to constitute an investment committee to vet and approve investment decisions made by the investment manager, the SEBI AIF Regulations did not mandate the formation of such an investment committee. The Amendment provides that an AIF’s investment manager may, at its option, constitute an investment committee to approve investment decisions of the AIF. If such an investment committee were to be constituted, then, the following rules introduced by the Amendment will apply:  

1. the members of the investment committee shall be equally responsible as the investment manager for the investment decisions of the AIF.
2. the investment 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 the SEBI AIF Regulations, the terms of the private placement memorandum, the contribution agreement between the AIF and the investor and any other fund documents and any other applicable law.
3. external members of the investment committee whose names are not disclosed in the private placement memorandum or in the contribution agreement or any other fund documents at the time of onboarding investors, can be appointed to the investment committee only with the consent of at least seventy five percent of the investors by value of their investment in the AIF. 

Please find a copy of the Amendment here.

This update has been contributed by Vinod Joseph (Partner).