On June 18, 2024, the Securities and Exchange Board of India (SEBI) announced a landmark reform aimed at enhancing operational flexibility and reducing compliance burden in the Alternative Investment Fund (AIF) ecosystem. The key reform? Permitting co-investment opportunities in unlisted securities through a structured Co-Investment Vehicle (CIV) model.

❌ What Was the Previous Regime?

1. No Formal CIV Structure: Investors in AIFs could co-invest, but there was no regulated framework or CIV structure provided by SEBI.

2. No Shelf PPM: Each co-investment required fresh disclosures, which increased the compliance burden.

3. Restriction on Advisory Services: AIF managers were prohibited from advising on listed securities in co-investment structures due to conflict of interest concerns.

✅ What Has Changed Now?

SEBI has now:

1. Allowed Co-Investment via CIV Model:

   • CIV must be a scheme under AIF Category I or II.

   • CIV enables co-investment into unlisted securities of investee companies.

   • CIV scheme to be offered only to Accredited Investors.

2. Shelf Private Placement Memorandum (PPM):

   • AIFs can now file a shelf PPM at registration stage for all future CIVs.

   • This reduces repetitive paperwork and facilitates speed.

3. Separate Scheme for Each CIV Investment:

   • Each CIV scheme must have a separate bank, demat account, and PAN.

   • This ensures transparency and segregation of investor flows.

4. Manager Advisory Now Allowed:

   • Managers of AIFs can now offer advice on listed securities in the co-investment context.

   • Advisory allowed even for portfolio companies of other AIFs.

   • Earlier conflict of interest concerns are now addressed with safeguards.

📈 Why This Matters to Investors

🔎 Example: How It Works Now

Imagine an AIF has invested in an unlisted startup called "GreenVolt Energy".

• Earlier: If Investor A wanted to co-invest alongside the AIF, it required a separate deal, legal structure, and disclosures.

• Now: The AIF can launch a CIV-GreenVolt scheme under the shelf PPM.

  • Investor A (an accredited investor) can invest directly via CIV.

  • The CIV will have its own accounts and will be ring-fenced.

  • The AIF manager can now also advise on GreenVolt’s potential listing and provide insights on strategy.

❓ Q&A Section

Q1. Who can participate in CIV schemes? Only Accredited Investors as per SEBI norms.

Q2. Can AIF managers now give stock tips? No. They can advise on listed securities but only in the context of co-investment related to the AIF's portfolio.

Q3. Is this applicable to all AIFs? This is applicable to Category I and II AIFs. Category III is excluded.

Q4. What does shelf PPM mean? It’s a one-time disclosure document covering the CIV scheme framework, which avoids filing a new PPM every time a new co-investment is made.

Q5. What protections are in place? CIV schemes are subject to implementation standards issued by the Standard Setting Forum for AIFs. These aim to ensure bona fide intent and avoid misuse.

📆 Final Word

This move by SEBI is a progressive shift to match global AIF practices. By enabling structured co-investment, reducing regulatory friction, and allowing nuanced advisory roles, SEBI is encouraging more capital participation and transparency in India’s alternative investment landscape.

Stay updated with UnlistedZone for more such critical reforms that impact private market investors.