Consultation on Allowing Co-Investment Within AIF Structure via CIV Model

SEBI/CONSULT/PAPER/2025/09

Link to SEBI’s Consultation Paper

Applicability:

This consultation paper is applicable to all SEBI-registered Alternative Investment Funds (AIFs) and their investment managers, particularly those offering or intending to offer co-investment opportunities to investors.

Objective of the Proposal:

• Enable AIFs to offer co-investment opportunities within their structure via a new scheme - Co-Investment Vehicle (CIV).

• Remove existing prohibition on AIF Managers from providing advisory services in listed securities under Regulation 20(15) of AIF Regulations.

Key Issues and Background:

• Current PMS route for co-investment is restrictive due to investment caps, early exit rights, and registration burdens.

• Co-investors face operational hurdles including complex documentation and lack of uniformity in exit terms.

• Global fund managers do not face similar regulatory barriers, impacting domestic fund competitiveness.

• Advisory restrictions limit AIF managers from offering guidance on listed securities in a co-investment context.

Recommendations of the Ease of Doing Business (EoDB) Working Group:

• Replace the PMS-based co-investment framework with a CIV-based framework under AIF Regulations.

• Permit AIFs to launch CIVs as separate schemes, registered as Category I or II AIFs.

• CIVs to have:
  – Shelf PPM filed along with main AIF
  – Co-investment only for Accredited Investors
  – Exemptions from diversification, sponsor commitment, and tenure norms
  – Registration deemed approved if SEBI raises no queries within 30 days of filing

Proposed CIV Framework:

• CIV shall be a scheme of the AIF for co-investment in unlisted securities of investee companies.

• Separate CIV scheme for each co-investment with distinct PAN, bank and demat accounts.

• Shelf PPM to detail eligibility, investment policy, and conditions—available for investor review.

• CIV schemes to be subject to implementation standards to avoid misuse of regulatory flexibility.

Regulatory Exemptions Proposed for CIVs:

• Diversification norms (Regs 15–17)

• Sponsor commitment

• Minimum 3-year tenure

Call for Comments on the Following Proposals:

Proposal 1: Permit managers of AIFs to offer co-investments via separate CIV schemes.
Proposal 2: Approve the CIV construct as detailed above.
Proposal 3: Discontinue co-investment through the PMS route if CIV-based model is adopted.
Proposal 4: Mandate co-terminus exit terms for CIVs and the main AIF to align investor interests.
Proposal 5: Allow AIF Managers to advise investors on listed securities, regardless of AIF investment.
Proposal 6: Restrict advisory services on thinly traded/not traded listed securities, where conflict of interest may arise.

Effective Date:

This is a consultation paper. Final regulations will be notified post consideration of public comments due by May 30, 2025.

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