Sebi May Bring Standard Valuation For AIFs: Report
As per the report, the aim is set out best practices for determining fair value AIF investments, especially in unlisted startups, real estate, infrastructure and the credit space
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The securities and exchange board of India (Sebi) may prescribe standard valuation norms for alternative investment funds (AIFs) along the lines of international private equity and venture capital valuation (IPEV) guidelines, which are followed by funds globally. The regulator may also prescribe a list of valuers, which may include global consultancy firms and independent valuers, according to a FE report.
As per the report, the aim is to set out best practices for determining fair value AIF investments, especially in unlisted startups, real estate, infrastructure and the credit space. The guidelines are expected to provide a framework that is consistent with global accounting principles and make the INR 6.94 trillion AIF industries more competitive.
Siddarth Pai, partner, 3one4 Capital, in the news report was quoted as saying, "At present, you could have a situation where the same unlisted investment has wildly differing fair market values across different funds depending on who does the valuation and the methodology used. Distortions in valuations could especially be glaring for investments in startup firms. A standard set of valuation norms will help investors better track the progress of their investment during the life of the fund and know its value if the fund were to be liquidated on a particular date."
As per the report, the current valuation requirement creates a number of hurdles for fund managers especially in case of unlisted companies, including startups. In such cases, the fund manager may need to rely on data that is provided by the portfolio companies, which may not be readily available.