Before diving in, letโs step back: ๐๐ก๐๐ญ ๐ข๐ฌ ๐๐จ-๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ?: Co-investment simply means certain investors get to invest directly alongside an AIF in a specific company. Instead of just pooling money into the main fund, these investors can take a parallel, targeted exposure in the same unlisted company, on the same terms as the fund. Itโs a way to double down on opportunities while still moving in sync with the main AIF.
๐๐ก๐๐ญโ๐ฌ ๐๐ก๐๐ง๐ ๐๐?: Till now, such co-investments mostly happened via Portfolio Managers under PMS Regulations, 2020. That route continues. But SEBI has now gone a step further by creating a formal โCo-Investment Schemeโ mechanism under the AIF Regulations, 2012 for Cat-I and Cat-II AIFs.
๐๐จ๐ฐ ๐ฐ๐ข๐ฅ๐ฅ ๐ข๐ญ ๐ฐ๐จ๐ซ๐ค?:
๐๐ง๐ ๐ฌ๐๐ก๐๐ฆ๐, ๐จ๐ง๐ ๐๐จ๐ฆ๐ฉ๐๐ง๐ฒ: Each co-investment must be a separate scheme under the AIF, backed by a shelf placement memorandum filed with SEBI.
๐๐๐๐ซ๐๐๐ข๐ญ๐๐ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ๐ฌ ๐จ๐ง๐ฅ๐ฒ: Participation is limited to accredited investors of the AIF scheme.
๐๐ฅ๐ข๐ ๐ง๐๐ ๐ญ๐๐ซ๐ฆ๐ฌ & ๐๐ฑ๐ข๐ญ๐ฌ: Co-investors cannot get better terms than the AIF; exits must be synchronized. ๐๐ข๐ซ๐๐๐ญ ๐จ๐ง๐ฅ๐ฒ: Co-investment schemes cannot invest in other AIFs – only into the chosen company.
๐๐ก๐ฒ ๐ข๐ญ ๐ฆ๐๐ญ๐ญ๐๐ซ๐ฌ? ๐ ๐จ๐ซ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ๐ฌ: more transparency, aligned risks, and an avenue to selectively participate in high-conviction deals.
๐ ๐จ๐ซ ๐๐ฎ๐ง๐ ๐ฆ๐๐ง๐๐ ๐๐ซ๐ฌ: a new way to engage investors and mobilize additional capital – but with added compliance (shelf memorandums, filings, and stricter exit rules).
๐๐๐ ๐ฌ๐ญ๐ซ๐๐๐ญ ๐๐ข๐๐ฐ: SEBI is not replacing the PMS route – itโs simply adding another structured lane for co-investments. Expect fund documents and negotiations to become more detailed and nuanced from here on. By mandating shelf placement memorandums, scheme-specific documentation, and synchronized exit clauses, it will make fund documentation more nuanced and detailed. For managers, this means higher upfront paperwork and operational rigor; for investors, it delivers transparency, alignment, and confidence. Net outcome is sharper drafting, deeper investor engagement, and a more mature AIF ecosystem, while the PMS route continues as an alternative.
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