Curriculum- Alternative Investment Fund Managers
I. INVESTMENTS LANDSCAPE
A. Investment
B. Investment versus Speculation
C. Investment Objectives
D. Estimating the required rate of return
II. TYPES OF INVESTMENTS
A. Traditional Investments Vs. Alternative Investments
B. Types of Traditional Investments
C. Types of Alternative Investments
D. Channels for making investments
E. Role of Alternative Investments in Portfolio Management
F. Alternative Investments – Antecedents and Growth
III. CONCEPT OF INFORMATIONAL EFFICIENCY
A. Informational efficiency Vs. Operational Efficiency
B. Efficient Capital markets and Random Walk Theory
C. Tests and Results of Efficient Market Hypotheses
D. Market Anomalies
E. Implication of market efficiency on Valuation and Portfolio Management
IV. INTRODUCTION TO MODERN PORTFOLIO THEORY
A. Framework for constructing portfolios – Modern Portfolio Theory
B. Assumptions of the theory
C. Definition of risk averse, risk seeking and risk neutral investor
D. Expected rate of return for individual security
E. Variance of return for individual security (Ex-Ante Risk)
F. Expected rate of return for a portfolio: (Ex-Ante Return)
G. Variance of return for a portfolio
H. Efficient Frontier
I. Portfolio Optimization process
J. Estimation issues
V. INTRODUCTION TO CAPITAL MARKET THEORY
A. Introduction to Capital Market Theory
B. Assumptions of Capital Market Theory and the implication of relaxing these assumptions
C. Capital Market Line
D. Diversification of risk and market portfolio
E. Types of risk – Market and Non-market risk
F. Capital Asset Pricing Model, CAPM
G. Security Market Line
H. Empirical test of CAPM
I. Multi factor models of risk and return
VI. ALTERNATIVE INVESTMENT FUNDS IN INDIA AND ITS SUITABILITY
A. Evolution and Growth of AIFs in India and Factors enabling preference for Indian AIF market
B. Types of AIFs
C. Comparison of Categories
D. Suitability of AIF products to Investors
E. Current AIF Market in India
F. Comparison between Category III AIF and Traditional Investments
G. Role of AIFs in Portfolio Diversification
H. AIF as a Risk Management Tool
VII. ALTERNATIVE INVESTMENT FUND ECOSYSTEM
A. Concepts prevalent in the AIF industry
B. AIF Ecosystem
C. Crowdfunding and Corporate Venture Funding
D. Co-investments
E. Service Providers
F. Capital Commitment and Sponsor Commitment
G. Drawdown and Capital Invested
H. Due Diligence
I. Environmental, Social and Governance
J. First close and Final close
K. Green Shoe Option
L. Fees and Expenses
M. Additional Returns and Performance Fees
N. Distributions / Waterfall
O. Term Sheet and Summary of Principal Terms (SOPT)
P. Private Placement Memorandum
VIII. ALTERNATIVE INVESTMENT FUND STRUCTURING
A. Principle of ‘Pooling’
B. General ‘Pooling’ Considerations
C. Buy-out Transactions
D. Anatomy of AIF Constitution
E. Common Fund structures of AIF
F. Comparative Analysis
IX. FEE STRUCTURE AND FUND PERFORMANCE
1. Fee Structure:
A. Management Fees and Other Expenses
B. Hurdle Rate
C. High-Water Mark
2. Risk Metrics:
D. Risks in AIF
E. Types of Risks in AIFs
F. Risk Measures
3. Return Metrics:
G. Return Measures in Alternative Investments
H. Pre and Post Tax Returns
4. Risk-Return Metrics:
I. Risk-adjusted Return Metrics and Performance Measures
J. Worked out Case
Annexure 1:Template of Important Risk Factors at Fund Level and Investor Level
X. INDICES AND BENCHMARKING
A. Index
B. Uses of Indices
C. Factors differentiating the indices
D. Index Methodologies
E. Stock market indices
F. Bond Market Indices
G. Stock-Bond (Composite) Indices
H. Performance Benchmarking
I. Benchmarking Agencies
J. Role of a benchmark in evaluating alpha generated by an AIF
XI.INVESTMENT STRATEGIES, INVESTMENT PROCESS AND GOVERNANCE OF FUNDS
1. Investment Strategies:
A. Investment Strategies used by Category I and II AIFs
B. Investment Strategies used by Category III AIFs
2. Investment Process:
C. Deal Sourcing
3. Governance of Funds:
D. Investor Due Diligence
E. Definitive Agreements
F. Investor Protection Rights in Category I and II AIFs
G. Regulation on Governance Structure in AIF
H. Role of Human Capital in avoiding Conflict of Interests
I. Co-investments in AIFs
J. Code of Conduct of Investment Managers of AIFs and Investment Committee
K. Industry best practices
XII. FUND DUE DILIGENCE – INVESTOR PERSPECTIVE
A. Fund Due Diligence
B. Investment Due Diligence by Investors
C. Manager Evaluation
D. Manager Selection
E. Key Man Clause
F. Due Diligence on other Legal Documents
G. Mitigation of Conflict of Interest
Annexure 2: Illustrative Fund Due Diligence Information and Questionnaire
XIII. LEGAL DOCUMENTATION AND NEGOTIATIONS
A. Introduction
B. The Trust Document / Limited Liability Partnership Deed / Memorandum and Articles of Associations
C. The Investment Management Agreement
D. The Subscription (Investor Contribution) Agreement
E. Private Placement Memorandum
F. Wrapper
G. Support Services Agreements
Annexure 3: Investor Charter for Alternative Investment Funds
XIV. VALUATION
A. Introduction
B. Valuation Basics for Fixed Income Instruments
C. Approaches to Equity Valuation
D. Approaches to Business Valuation
E. Asset based Valuation
F. Discounted Cash Flow (DCF) Valuation
G. Relative or Multiple based Valuation
H. Valuation of AIF Portfolio Investments (Investee Companies)
I. General Approach to Fund Valuation
J. Net Asset Value (NAV)
K. Valuation Techniques
L. Computation of NAV for a Category III AIF vs. NAV attributable to a series of units issued to investors
XV. FUND MONITORING, REPORTING AND EXIT
A. Monitoring Alternative Investment Fund Progress and Performance
B. Regulatory Framework for Fund Monitoring and Reporting
C. Fund Reporting
D. Exit Options
E. Secondary Exits (Secondaries)
F. Winding Up of an AIF
G. Liquidation Scheme
XVI. TAXATION
A. Taxation of Category I and Category II AIFs
B. Taxation of Category III AIF
C. Surcharge Rates
D. Set off and carry forward of loss under the ITA
E. General Anti-Avoidance Rule (GAAR)
F. Multilateral Convention to Implement (MLI)
G. Other applicable taxes
H. Examples
XVII. REGULATORY FRAMEWORK
1. SEBI (Alternative Investment Funds) Regulations, 2012
A. Registration Process and Eligibility Criteria
B. Sponsor / Manager Commitment
C. Concept of Open-ended and Close-ended Funds
D. Accredited Investor Framework
E. First Close, Final Close and Tenure of Funds / Schemes
F. Investors’ subscription to the Fund/Scheme
G. Raising Corpus Capital
H. Investment Conditions applicable to AIFs
I. Guidelines on Operational, Prudential and Reporting Norms for Category III AIFs
J. General Obligations and Responsibilities of AIFs
K. Inspection
L. Code of Conduct for AIFs
M. Exemption from enforcement of the regulations in special cases
N. Periodic Disclosures and Reporting
2.Foreign Exchange Management Act, 1999
A. FDI and its Economic Significance
B. Investment Framework under FEMA
C. Inbound Foreign Investment Routes
D. Foreign Investments in AIFs
E. Overseas Investments by AIFs
3. Prevention of Anti-Money Laundering Act, 2002
4. Other related SEBI Regulations
A. SEBI (Prohibition of Insider Trading) Regulations, 2015
B. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003
C. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
D. SEBI (Foreign Portfolio Investors) Regulations, 2019
5. Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS)
GLOSSARY
