Sebi may prescribe global Private Equity and Venture Capital-like valuation norms for AIFs
Mumbai, December 12, 2022
The Securities and Exchange Board of India (Sebi) may prescribe standard valuation norms for alternative investment funds (AIFs) along the lines of International Private Equity and Venture Capital Valuation Guidelines (IPEV), which are followed by funds globally.
The regulator may also prescribe a list of valuers, which may include global consultancy firms and independent valuers, said people in the know.
The aim is to set out best practices for determining fair value of AIF investments, especially in unlisted startups, real estate, infrastructure and the credit space. The guidelines are expected to provide a framework that is consistent with global accounting principles and make the Rs 6.94 trillion AIF industry more competitive.
Existing rules require an AIF to provide a valuation report to investors once every six months or every year. The funds are free to use their own methodology and choose any valuer. Large funds and those with sizeable foreign investments, however, already follow IPEV guidelines, according to industry officials.
“At present, you could have a situation where the same unlisted investment has wildly differing fair market values across different funds depending on who does the valuation and the methodology used. Distortions in valuations could especially be glaring for investments in startup firms. A standard set of valuation norms will help investors better track the progress of their investment during the life of the fund and know its value if the fund were to be liquidated on a particular date,” said Siddarth Pai, Partner, 3one4 Capital.
Unlike mutual funds where the net asset values reflect the price daily, AIFs typically value their portfolio companies yearly or half-yearly. The current valuation requirement creates a number of hurdles for fund managers especially in case of unlisted companies including startups. In such cases, the fund manager may need to rely on data that is provided by the portfolio companies, which may not be readily available.
[The Indian Express]
