CAT THREE AIF characteristics

The AIF industry is nurtured by the private capital ecosystem that consists of primarily (a) the investors, looking out for alternative investment opportunities, (b) the alternative investment managers, having the expertise to identify, invest, manage and harvest the returns for investors, (c) the sponsors, who initiate and float the Category III AIFs (more often the investment managers themselves) and (d) the external service providers who facilitate and make up the ecosystem. With the advent of an organized AIF industry and introduction of the SEBI (Alternative Investment Funds) Regulations, 2012, Category III AIFs have witnessed significant growth after 2012 and many of these constituents of the private capital ecosystem are taking shape rapidly.

Category III AIFs follow a stated investment strategy, mentioned in its offer document, or Private Placement Memorandum (PPM). The PPM is issued by the Category III AIF Investment Manager or Sponsor of the fund to prospective investors for the purpose of inviting subscriptions to units of a new scheme.

“Unit” means beneficial interest of the investors in the AIF or a scheme of the AIF and maybe fully or partly paid-up.

Partly paid-up units represent the portion of the committed capital invested by the investor in AIF or scheme of the AIF.

The PPM sets out the broad terms and conditions subject to which the fund is proposed to be operated, associated risk factors, potential conflicts of interests, fee structure, distribution waterfall, taxation aspects, applicable regulatory norms and necessary disclosures in connection therewith.

Investment strategy

The investment strategy describes the type(s) of asset classes in which the Category III AIF will invest in. For example, if the Fund proposes to invest in equities, the investment strategy will outline the following:

Target Market Capitalization: Target Size of the company

Small cap, Mid cap, Large cap, SME companies or Microcap Companies, Securitised Debt Instrument, overseas investments in listed investee companies.

Investment Style

Value Investing - companies which are generally under - priced at present market prices and have a reasonable future growth trajectory.

Growth Investing - Growth Stocks, i.e. companies with high growth projections and have expected growth rates in sales/profit to be higher than the industry average.

GARP ( Growth at a reasonable price ) - investment style, which combines the tenets of Value Investing and Growth Investing, while making stock selection.