The Securities and Exchange Board of India is set to have its board meeting on June 18 and a slew of important market reforms are on agenda, including major changes for the  Alternative Investment Fund industry, people in the know told NDTV Profit.

As per the draft paper released by the regulator on May 9, suggestions were made for AIF investors to have co-investment opportunities in unlisted companies through a co-investment vehicle. This is likely to be up for discussions in the upcoming Wednesday meeting.

Currently, if an investor in an AIF wants to put additional money into a company that the AIF is investing in, it has to be done outside the AIF structure—typically through the Portfolio Management Services route. But this route has several limitations.

These include PMS regulations restricting investments in unlisted companies, PMS clients having the option to exit early, which may not align with the AIF’s timelines and finally, investment managers not being allowed to advise co-investors on listed securities under the current rules.

Because of these restrictions, the AIF industry has been asking SEBI to allow co-investments to be done within the AIF itself, but in a separate scheme or unit. SEBI had initially rejected this idea to maintain the pooled nature of AIFs, where all investors share profits and losses based on their contribution. However, after further discussion and industry feedback, SEBI is now reconsidering.

The markets regulator is proposing a new model where AIFs can launch a separate CIV for each co-investment opportunity. These CIVs will be linked to the main AIF but will function as separate schemes with their own registration.

SEBI’s working group on ‘Ease of Doing Business’ found several issues with the current PMS-based co-investment model. These include increased costs, complex paperwork, delays in deal closures, and a lack of flexibility. Foreign funds, not subject to these constraints, have an advantage over domestic fund managers when competing for big-ticket deals in India.

By allowing co-investments within the AIF structure, SEBI hopes to level the playing field.

. Read more on Markets by NDTV Profit.As per the draft paper released by the regulator on May 9, suggestions were made for AIF investors to have co-investment opportunities in unlisted companies.  Read MoreMarkets, Business, Notifications 

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