SEBI Proposes to Standardise Approach to AIF Portfolio Valuation

SEBI proposes that PE funds, angel funds, and VC funds in India adopt the internationally recognised IPEV guidelines for portfolio valuation.

SEBI (Securities and Exchange Board of India) has issued a new discussion paper proposing to standardise the approaches used by AIFs (alternative investment funds) to portfolio valuation.

The paper says current norms for AIFs (e.g. PE funds, angel funds, VC funds) prescribe disclosures related to valuation, but that they do not specify any methodology.

A common approach to valuation will bring greater convenience to the industry while also ensuring fair disclosure of investment value, SEBI said.

The paper proposes the adoption of the internationally recognised IPEV (International Private Equity and Venture Capital Valuation) guidelines by AIFs in India.

Currently, only 26.4 percent of Category I and Category II AIFs (which primarily invest in unlisted securities) follow the techniques specified in the IPEV guidelines. Other AIFs follow market, income, asset and cost-based approaches, the paper says.

Further, the methodologies and principles used for valuations of AIF investment portfolios are not disclosed in private placement memoranda and are not reported to SEBI.

The paper proposes to impose new responsibilities on AIF managers with regard to portfolio valuation and related disclosures, and requirements to ensure valuations are properly reported to performance benchmarking agencies.

A six month timeline proposed for such reporting, based on audited data at the end of March each year, would mean investee companies including startups would need to report their audited accounts to AIFs in a timely manner.

The paper also seeks feedback on proposed requirements for AIFs to appoint an independent valuer that meet new minimum eligibility requirements. Criteria for evaluating independent valuers are also proposed.