SEBI has allowed Category-I and Category-II AIFs to borrow for the purpose of meeting temporary shortfall in drawdown amount, with 30 days cooling-off period between two periods of borrowing.
Such borrowing has to be done only as a last recourse, when the investment opportunity is imminent to be closed and the drawdown amount from investors has not been received by the AIF before the date of investment, in spite of best efforts.
The amount borrowed should not exceed 20 per cent of the investment proposed to be made in the investee company, or 10 per cent of the investable funds of the scheme of AIF, or the commitment pending to be drawn down from investors, whichever is lower.
The cost of such borrowing will be charged only to investors who failed to provide the drawdown amount for making investments.
Extension for LVFs
A large value fund may extend its tenure up to five years, subject to the approval of two-thirds of the unit holders by value of their investment in the LVF.
Existing LVF schemes which have not disclosed a definite period of extension or whose period of extension is beyond five years, have to realign the period of extension within three months from the circular.
“The introduction of new SEBI guidelines strikes a balance between increasing operational flexibility for AIFs and maintaining rigorous oversight and investor protection. These guidelines provide AIFs with valuable options to tackle liquidity challenges and capitalise on time-sensitive investment opportunities. On the other side, it is important to manage the potential risks associated with borrowing, such as overreliance, higher costs for delinquent investors and added administrative complexities,” said Navin Dhanuka, Founder and CEO of Altern Capital.