Standardized Valuation Approach for Alternative Investment Funds (AIFs)

To address the inconsistency and potential manipulation in the valuation of investment portfolios of Alternative Investment Funds (AIFs), SEBI has implemented amendments to standardize valuation techniques. Previously, varying methodologies allowed AIFs to present a broad range of values, leading to non-uniformity and potential distortion. The amendments aim to eliminate these discrepancies and ensure transparency.

Effective Date and Applicability

SEBI issued the “Standardized Approach to Valuation of Investment Portfolio of Alternative Investment Funds (AIFs)” circular on June 21, 2023. These provisions will take effect from November 1, 2023. From this date, all AIFs must adhere to SEBI’s valuation guidelines and obtain valuations from a Registered Valuer.

Valuation Methods

Norms for Valuation of Securities

For securities with existing valuation norms under the SEBI (Mutual Funds) Regulations, 1996, the prescribed methods will continue to apply. Traded securities should be valued at their last quoted closing price, while non-traded securities should be valued based on methods approved by the Asset Management Company (AMC). This includes using capitalization of earnings or net asset value approaches.

Valuation of Other Securities

For securities not covered under existing norms, valuation should follow guidelines endorsed by an AIF industry association representing at least 33% of SEBI-registered AIFs. These guidelines should consider recommendations from SEBI’s Alternative Investment Policy Advisory Committee.

Manager’s Responsibilities

Under Regulation 23(5) of the AIF Regulations, managers must ensure an independent valuer performs the valuation as specified by SEBI. According to Regulation 23(6), managers are responsible for fair and true valuation, documenting any necessary deviations from established policies to ensure fairness.

Reporting Requirements

Any significant valuation deviations must be disclosed to investors, explaining the reasons and factors behind the changes. Managers must report any changes in valuation methodology or accounting practices annually to SEBI and investors.

Eligibility Criteria for Independent Valuers

Independent valuers must not be associated with the manager, sponsor, or trustee of the AIF and should have at least three years of experience in valuing unlisted securities. They must be registered with the Insolvency and Bankruptcy Board of India (IBBI) and hold memberships in relevant professional bodies, or be part of a SEBI-registered Credit Rating Agency.

Reporting to Benchmarking Agencies

Managers must ensure audited accounts of investee companies are provided within agreed timeframes to facilitate accurate reporting to performance benchmarking agencies by March 31 each year. Reports based on these audited accounts must be submitted within six months.

ValuGenius Advisors LLP Services

At ValuGenius Advisors LLP, we specialize in the valuation of Alternative Investment Funds, ensuring compliance with SEBI’s standardized approach. Our expertise extends to business valuation, startup valuation, and the valuation of goodwill. We offer comprehensive valuation services to help AIFs meet regulatory requirements and provide true and fair investment valuations.

By adopting SEBI’s standardized approach, we at ValuGenius Advisors LLP ensure that AIF valuations are accurate, transparent, and consistent, fostering trust and integrity in the financial industry. Contact us today to learn more about how we can assist you with your valuation needs.

For professional valuation services tailored to your needs, visit ValuGenius Advisors LLP.