SEBI Proposes Enhanced Flexibility For AIF Co-Investment Opportunities Through New CIV Model

In a consultation paper released on Friday, the capital markets regulator proposed allowing AIFs to offer co-investment opportunities within their existing structures

Co-investment typically refers to instances where select investors are provided with additional investment opportunities alongside the main fund

Source : PTI

The Securities and Exchange Board of India (SEBI) has announced a fresh set of proposals aimed at expanding the operational flexibility of Alternative Investment Funds (AIFs), particularly in facilitating co-investment opportunities for investors. The move is part of SEBI’s broader effort to foster innovation and investor participation in India’s growing AIF landscape.

In a consultation paper released on Friday, the capital markets regulator proposed allowing AIFs to offer co-investment opportunities within their existing structures through the creation of a dedicated Co-Investment Vehicle (CIV). This CIV would function as a separate scheme under the AIF, primarily targeting investments in unlisted securities of investee companies that the fund is either investing in or has already invested in.

Co-investment typically refers to instances where select investors are provided with additional investment opportunities alongside the main fund, based on specific eligibility criteria such as the investor’s commitment size or strategic value. Under the new proposal, only accredited investors would be permitted to participate in such CIV schemes.

Structured Framework

SEBI’s proposal outlines a structured framework for the implementation of the CIV model. Each CIV scheme must be distinctly identifiable with its own bank account, demat account, and Permanent Account Number (PAN). A separate scheme would need to be launched for each co-investment opportunity, with prior intimation to SEBI. Furthermore, a "shelf Private Placement Memorandum (PPM)" would be required at the time of AIF registration, or subsequently, for those intending to offer CIV-based co-investment options.

In a significant shift, SEBI also suggested lifting restrictions that currently prevent AIF managers from offering advisory services in listed securities, thereby broadening their functional scope.

The proposed CIV schemes would be exempt from certain regulatory norms, such as investment diversification requirements, sponsor commitment rules, and minimum tenure stipulations. However, these exemptions would be accompanied by oversight from a designated standard-setting body within the AIF ecosystem to ensure ethical and transparent use of the extended flexibility.

SEBI has opened the consultation process to public feedback and will accept comments on the proposed changes until May 30.