CART’s Grading Framework / Methodology for Alternative Investment Fund (AIF)

CART’s AIF Grading is an assessment of the Alternative Investment Fund (AIF) and opinion on the asset selection ability and asset management capabilities in their respective segments.  

Definition and Grading Process

CART’s grading of AIF schemes are an opinion on the asset selection ability and asset management capabilities in their respective segments. Respective segments mean industry / sub-industry / asset class in which AIF intends to invest (MFI segment, healthcare industry etc.).

What AIF Grading is not?

The AIF grading is not a recommendation to purchase, sell or hold a security / fund and also does not comment on the prospective performance of the fund with respect to appreciation, volatility of net asset value (NAV), or yield of the fund. The AIF grading does not address the fund’s ability to meet the payment obligations to its investors.

Grading Process

The grading process will start on signing of the grading agreement and initial information from the client. The CART team will analyze the information, interact with the client and conduct visits of their offices and branches to evaluate the systems. CART will also take feedback from the auditors of the client. The team would prepare a note for consideration of the Grading Committee. The grading as decided by the committee will be communicated to the client along with the rationale for the same. The grading accepted by the clients will be published. CART evaluates an AIF under a five point framework:
  1. Sponsor Evaluation
  2. AMC Evaluation
  3. Investments (Portfolio) Related Processes
  4. Risk Management Systems
  5. Operations / Technology
The various aspects covered under each parameter are given below:

  1. Sponsor Evaluation
    • Financial and business strength of the sponsor
    • Extent of Sponsor’s commitment
    • Experience of the sponsor in the targeted segments
    • Management quality of sponsor

  2. AMC Evaluation
    • Experience in fund management
    • Size of the overall assets under management
    • Organizational structure
    • Liquidity analysis

  3. Investments (Portfolio) Related Processes
    • Portfolio selection process
    • Investment objectives
    • Maturity profile of the investments
    • Process for reviewing portfolio performance
    • Underlying portfolio quality

  4. Risk Management Systems
    • Risk identification and measurement
    • Risk monitoring and control

  5. Operations / Technology
    • Internal controls and adequacy of the information systems
    • Corporate governance and Regulatory compliance
    • Staffing
    • Client servicing
    • IT resources
Grading Symbols and Definition
Grading Symbol Definition
CARE AIF 1 The asset selection ability and asset management capabilities in their respective segments for these schemes are expected to be Excellent.
CARE AIF 2 The asset selection ability and asset management capabilities in their respective segments for these schemes are expected to be Good.
CARE AIF 3 The asset selection ability and asset management capabilities in their respective segments for these schemes are expected to be Adequate.
CARE AIF 4 The asset selection ability and asset management capabilities in their respective segments for these schemes are expected to be Inadequate.
CARE AIF 5 The asset selection ability and asset management capabilities in their respective segments for these schemes are expected to be Poor.

Disclaimer

CART’s alternative investment fund grading is not a recommendation to purchase, sell, or hold a security / fund. It neither comments on the current market price, suitability for a particular investor nor on the prospective performance of the fund with respect to appreciation, volatility of net asset value (NAV), or yield of the fund. The grading do not address the fund’s ability to meet the payment obligations to the investors.

The grading are based on current information furnished to CART by the issuer or obtained by CART from sources it considers reliable. CART does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CART does not perform an audit in connection with any grading and may, on certain occasions, rely on. The grading may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Funds rated by CART have paid a grading fee.

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