Sebi proposes to relax AIFs valuation methodology

MUMBAI: Capital markets regulator Sebi has proposed to relax the framework for valuing the investment portfolio of alternative investment funds (AIF) along with changes in the valuation methodology regarding ‘material changes’ eligibility criteria of independent valuers to be appointed by AIFs and timeline for reporting valuation of investment portfolio by them to performance benchmarking agencies.

The Securities and Exchange Board (Sebi) on Thursday issued a consultation paper mooting these changes and sought comments from the public by June 13.

The consultation paper suggests that for valuation of unlisted, non-traded, thinly-traded and those below investment grade securities, valuation norms under mutual fund regulations shall not apply and these securities be valued as per the international PE and VC valuation norms.

For valuation of securities, other than unlisted securities, it has been proposed that valuation norms be carried out according to the norms prescribed under mutual fund regulations.

It further said the valuation norms under the MF regulations cannot be applied to private instruments held by AIFs, since the MF valuation process is a rule-basedmework that follows a series of processes around pricing for investments in open-ended vehicles.

AIFs mostly hold private investments where one needs to delve into and present a fundamental valuation based on cash flows pertinent to the underwriting thesis, which mutual fund guidelines do not cover.