Roles, Responsibilities and Compliance Obligations of AIF Managers
Domain 2 - Roles, responsibilities and compliance obligations of AIF managers
The exam tests the manager (AIFM) as the regulated operating entity: who may act as manager, the fiduciary and disclosure duties attached to that role, and the recurring compliance calendar it must run across every scheme.
Who the manager is and what it must do
The AIFM is a company or LLP with a principal place of business in India, registered with SEBI, responsible for investment decisions, risk management, valuation, compliance and reporting for each scheme it manages. It owes a fiduciary duty to the scheme: act in investors' best interest, treat investors equitably, disclose conflicts, avoid self-dealing, front-running and preferential side arrangements, and price related-party transactions at arm's length with disclosure and investor consent where material.
Compliance obligations
- Maintain a written valuation policy, a documented investment process and books of account; retain records for at least five years.
- Report to investors and SEBI on the prescribed cycle - annual audited accounts and compliance reporting within six months of the financial year-end, plus periodic performance and NAV reporting.
- KYC/AML as a reporting entity under PMLA, FATCA/CRS, and sanctions screening of investors and investee companies.
- Fee discipline: disclose management fee, expenses and (Category III) performance fee; performance fees follow a high-water-mark principle and cannot be structured to be earned around losses.
- Notify SEBI and investors of material changes - control, key investment team, investment strategy or fee structure.
- Prohibition on assuring or guaranteeing returns.
Worked example
A manager receives a hot pre-IPO allocation. It first books part for its proprietary account, then fills its newest Category III scheme, then offers the residual to an older Category II scheme. This breaches the fiduciary duty, the fair-allocation policy and conflict-of-interest disclosure obligations - even if the older scheme's investors are told afterwards.
Traps
Investor consent cannot cure a regulatory breach such as guaranteeing returns; a manager's registration does not automatically extend to a new entity or control change; performance fees without a high-water mark, or charged contrary to the stated policy on unrealised gains, are recurring exam failures.