SEBI Requires AIFs’ Investment Managers’ Key Personnel to be NISM Certified

The initial SEBI (Alternative Investment Funds) Regulations, 2012 mandated that at least one member of the investment manager’s core investment team should have a minimum of five years’ experience in advising or managing capital pools, or in fund, asset, wealth, or portfolio management, or in trading securities or other financial assets. This person was also required to have a relevant professional qualification.

The requirement for the key personnel to have five years’ experience was dropped with effect from October 2020. Notably, the requirement for the key personnel to have a relevant professional qualification was also dropped with effect from May 2024. Instead, it was provided that the key personnel would be required to have a certification prescribed by the Securities and Exchange Board of India (“SEBI”).

On May 10, 2024, SEBI issued a gazette notification (“SEBI Notification”) which requires at least one key personnel in the Manager’s key investment team to obtain a certification from the National Institute of Securities Market (“NISM”). They will have to  pass the NISM Series-XIX-C: Alternative Investment Fund Managers Certification Examination (as mentioned in the communiqué No. NISM/ Certification/ Series-XIX-C: Alternative Investment Fund Managers/2024/01 dated January 10, 2024 issued by NISM).

On May 13, 2024, SEBI issued a circular (“SEBI Circular”) which stated that:

• The requirement for at least one personnel of the key investment team of the manager of the AIF to obtain the NISM Certification would apply to all applications for registration of AIFs and launch of schemes by AIFs filed after May 10, 2024.
• In case of existing schemes of AIFs and schemes of AIFs whose application for launch of scheme was pending with SEBI as on May 10, 2024, this certification can be obtained on or before May 09, 2025.

The certification requirement imposed by the SEBI Notification and the SEBI Circular  aims to establish a standardized minimum knowledge benchmark for AIF managers and their key investment teams, similar to the certification requirement for Investment Advisers and Research Analysts. However, it should not be forgotten that when SEBI reviews an application for registration of an AIF, SEBI needs to be convinced that the investment manager has the requisite competence to manage the AIF. Mere possession of the NISM certification by one person in the key investment team does not preclude SEBI from further probing the credentials of key investment team. Earlier, the relevant key person had to have a minimum of five years’ experience in the industry. The removal of this five-year requirement does not mean relevant experience in managing pools of money is not required. SEBI retains the ultimate authority to accept or reject an application if the investment manager is not up to scratch, irrespective of a key person holding an NISM certification.

A copy of the SEBI Notification can be found here.

A copy of the SEBI Circular can be found here.

We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com
Paridhi Jain, Associate, Email – paridhijain@elp-in.com