Business Standard | February 13, 2020

The Securities and Exchange Board of India’s (Sebi’s) diktat for benchmarking the performance of alternative investment funds (AIFs) may necessitate the creation of sub-categories. Sebi has classified AIFs into three categories, with four sub-categories for ‘Category I AIFs’ that include venture capital funds (including angel funds), SME funds, social venture funds, and infrastructure funds. There are no sub-categories for category-II and category-III AIFs.

“For data to be dissected meaningfully, sub-categorisation is required”
All category-III schemes, for instance, are not comparable and cannot be put under one basket as they include debt, equity, and hybrid schemes with long-only or long-short strategies. Equity schemes, in turn, could be large- or mid- or small-cap oriented. In 2017, Sebi had categorized MF schemes, de ning 10 categories for equity funds, 16 for debt funds, and six for hybrid funds. The sub-categorisation of AIFs could be far more complex. Separate categories for realty, commodity funds, sector funds, mezzanine funds, and special situation funds may have to be created, said experts.

AIF’s assets managed

Net figures at the end of December 2019, figures in ₹ crores; Source: SEBI
Subramaniam Krishnan, partner at EY India, said performance benchmarking will enhance transparency and aid in comparison across similar strategy schemes. “The key will be effective stratification of AIFs into relevant and well-de ned categories, such as special situations funds, mezzanine funds, real estate funds and sector funds, so that the performance of a particular fund and the benchmark are truly comparable,” he said. AIFs employing diverse/complex trading strategies and using leverage — including via investment in listed or unlisted derivatives — are category-III and include hedge funds and PIPE funds. Those not using leverage and not falling under categories I and III are classified as category-II, and may include realty funds, PE funds, and stressed asset funds

Sebi has proposed that an association of AIFs, with representation from at least 51 per cent of the industry, select one or more benchmarking agencies. The agreement between the agencies and AIFs should cover the mode and manner of data reporting, specific data that needs to be reported, and terms of confidentiality. Benchmarking will apply to all schemes that have completed at least one year from the date of ‘First Close’. Funds incorporated overseas with India track record shall also provide data to agencies when they seek registration as AIFs. Performance benchmarking shall be done half-yearly, based on data as of September 30 and March 31 each year. The reports are to be made available latest by July 1, 2020, for performance up to September 30, 2019.