SEBI’s consultation paper on Special Situation Funds: Key Takeaways

In a much needed clarity on ability of AIFs to enter into the distressed market sector, SEBI has recently issued a consultation paper to enable such ‘special situation funds’ (SSFs) (a distinct class of AIFs) to invest in stressed assets. This comes in light of the regulatory coordination between the RBI and SEBI to streamline the regulatory framework and build adequate safeguards for AIFs to explore potential opportunities in this space. Whilst the final guidelines are still awaited, the ability of SSFs to invest in stressed assets is likely to open up the investor pool in this market segment which was otherwise restricted to the regulated entities including ARCs, which have been the dominant participants, thus far.