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ARTICLE · 05 JANUARY 2023

Private Funds: SEBI Introduces Investor Diligence Requirements For AIFs

Resolut Partners
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On 9 December 2022, the Securities and Exchange Board of India ("SEBI") issued a circular directing managers to ensure that investors in an alternative investment fund ("AIF") satisfy...

IndiaFinance and Banking
Heena Ladji
Heena Ladji
Adhitya Srinivasan
Adhitya Srinivasan
Ruchir Sinha
Ruchir Sinha

Key Takeaways

  • SEBI has cast new investor diligence obligations on AIF managers, which extends to underlying investors
  • As per the new rule, the manager of an AIF is not permitted to on-board new inves- tors or draw down capital from existing investors unless the diligence conditions have been complied with
  • SEBI has not provided any grandfathering mechanism, which means that some AIFs may face immediate or near-term deal-completion issues
  • In the longer term, the new rule may lead to negotiations on various terms of fund economics and governance

Introduction

On 9 December 2022, the Securities and Exchange Board of India ("SEBI") issued a circular directing managers to ensure that investors in an alternative investment fund ("AIF") satisfy certain investor diligence criteria at the time of on-boarding investors ("Circular"). This is the first time that SEBI has cast a direct obligation in respect of investor diligence of AIFs (although it is worth

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