Enhancing Transparency: SEBI’s Performance Benchmarking for Alternative Investment Funds

 In 2012, the Securities and Exchange Board of India (SEBI) introduced the Alternative Investment Funds (AIF) regulations, a concise 52-page document. Since then, India’s AIF industry has experienced remarkable growth, underscoring the need for more transparency within the AIF universe. To address this need and enhance investor confidence, SEBI issued circulars in 2020 mandating Performance Benchmarking for all categories of AIFs.

Unveiling Performance Benchmarking

Performance benchmarking serves as a crucial tool, providing investors with a metric to compare an AIF’s performance against the category average. This process facilitates comparisons among AIFs themselves and with public market equivalents where applicable.

Recognized Agencies

Currently, CRISIL, NSE Indices Ltd, and PREQIN are the leading agencies responsible for ensuring that benchmarking is based on objectively verifiable parameters, such as investment instruments, fund tenure/vintage, and focus sectors.

The Benchmarking Process

1. Appointment of Agencies: AIF associations have appointed agencies and established timelines for reporting data.
2. Report Format: The form and format of reporting were decided by the associations and the benchmarking agencies.
3. Non-Disclosure Agreement: AIFs and the agencies enter into NDAs to safeguard sensitive information.

Timeline for Benchmarking

1. Frequency: Benchmarking occurs semi-annually, based on data as of September 30 and March 31 each year.
2. Eligibility: AIFs or schemes must have completed at least one year from their first close to be subject to benchmarking.
3. Data Submission: AIFs must submit data within 45 days for the half-year ending on September 30 and within six months for the half-year ending on March 31. Data for March 31 must be audited, while September 30 data may be unaudited.
4. Currency Reporting: Performance data and benchmarks are reported in both INR and USD terms.

Disclosure of Benchmarking Data

1. Private Placement Memorandum (PPM): Benchmarking data is included in the PPM and any marketing or promotional materials referencing the AIF’s past performance.
2. Track-Record Claims: Applicants claiming a track record based on the performance of funds incorporated overseas must provide data on investments in Indian companies to benchmarking agencies when seeking AIF registration.
3. Reporting to Investors: Any reporting to existing investors comparing an AIF or scheme’s performance to a benchmark must disclose benchmarking data.

The introduction of performance benchmarking for AIFs by SEBI marks a significant step towards enhancing transparency and investor confidence in India’s alternative investment landscape. By providing standardized metrics for performance evaluation, benchmarking fosters informed decision-making and supports the growth and development of the AIF industry. As the number and size of AUM of AIFs continue to rise, SEBI’s endeavors appear to be steering in the right direction