Benchmarking Agency
Also written Benchmarking agencies
An agency notified by an AIF association covering at least 33% of AIFs, which collects AIF performance data and publishes industry benchmarks and benchmark reports for individual funds.
In plain language
For Category III AIFs, choosing a benchmark is "very subjective". A manager may report against one index while investors want another. Strategies also differ so much that no single index fits every fund. The industry needed a common yardstick.
SEBI's circulars on disclosure standards required an industry benchmark to be built. It would compare the AIF industry's performance with other places to invest, including global ones. The circulars also recommended market-wide benchmarking agencies.
Here is how the framework works. Take any association of AIFs whose members make up at least 33% of the number of AIFs. It may name (notify) one or more benchmarking agencies. Each agency signs an agreement with every AIF to carry out benchmarking. The association and the agencies agree together on the form and format of reporting.
The workbook names three benchmarking agencies appointed by IVCA: CRISIL, NSE and Preqin. They publish AIF benchmarks for all categories, in USD and INR.
How it works
What AIFs send. A Category III AIF that has completed at least 1 year from first close reports performance-related data, cash flow data and scheme-wise valuation data, under an agreement that keeps the data confidential. The data format must include the valuation principles and the name of the valuation agency.
SEBI's operational guidelines (Box 6.2).
- Benchmarking is half-yearly, on data as on 30 September and 31 March.
- 31 March data must be audited; 30 September data may be unaudited.
- AUM for benchmarking = total capital drawn down under the scheme.
- Reporting and benchmarking are on pre-tax NAV.
- Agencies create comparable industry benchmarks for Category I, II and III separately for each year since 2012, disseminated publicly; additional benchmarks may use objectively verifiable parameters such as instrument, tenure or vintage, and focus sectors.
- Each AIF receives a Performance Benchmark Report against the industry benchmarks, with the basis of calculation.
- Data and benchmarks are reported in INR and USD.
- On request, agencies may prepare customised reports — fee-based, with the consent of AIFs whose data is used — called "Performance Report", as distinct from the standard "Benchmark Report".
Timely valuation reporting. The manager must build a timeframe for audited accounts into its agreements with investee companies, so that valuations based on audited data as on 31 March reach the agencies within 6 months, and only after the AIF's own audit.
Category III benchmarks are asset-weighted indices using fund AUM and quarterly returns, computed on post-expense, pre-carry, pre-tax values; fund selection depends on years completed since first close.
Disclosure. Category III AIFs are required to disclose benchmarked performance, as derived by the agency, in marketing materials and investor reports.
A worked example
Illustrative figures. Tungabhadra Long-Short Fund, a Category III AIF scheme, declared first close on 15 August 2024.
Reporting timeline:
| Benchmarking date | Has the scheme completed 1 year from first close? | Report? | Audited? |
|---|---|---|---|
| 31 March 2025 | No (about 7.5 months) | Not required | — |
| 30 September 2025 | Yes | Yes | May be unaudited |
| 31 March 2026 | Yes | Yes | Must be audited |
For 31 March 2026, valuations based on audited data must reach the agency within 6 months — by end-September 2026 — and only after the fund's own books are audited.
What the agency computes. The fund's AUM for benchmarking is its drawn-down capital, Rs 380 crore, and returns are measured on pre-tax NAV. Its Category III peer benchmark is an asset-weighted index of quarterly returns, post-expense, pre-carry, pre-tax.
The agency sends the fund a Benchmark Report showing, say, a one-year return of 14.2% against a Category III industry benchmark of 12.6%. When the manager later pitches the next scheme to Mrs Nair, the marketing material must include that benchmarked performance as derived by the agency — not a return set against a more flattering index chosen by the manager.
Why NISM asks about it
Chapter 6 (Fees Structure, Fund Performance and Benchmarking) covers benchmarking agencies at 6.3, including the 33% association rule, the one-year-from-first-close threshold, SEBI's operational guidelines in Box 6.2, the timely valuation reporting requirement and the construction of Category III benchmarks. Chapter 10's pitch book guidance refers to benchmarks published by performance benchmarking agencies. Expect questions on who notifies agencies, the reporting dates, audited versus unaudited data, and the basis (pre-tax NAV; post-expense, pre-carry, pre-tax for Category III).
Common exam traps
- Agencies are notified by an association of AIFs representing at least 33% of AIFs by number — not appointed directly by SEBI.
- Only schemes at least 1 year past first close report.
- Half-yearly: 30 September and 31 March; March data audited, September data may be unaudited.
- AUM for benchmarking = total capital drawn down, not commitments.
- Benchmarking uses pre-tax NAV; Category III indices use post-expense, pre-carry, pre-tax returns, asset-weighted on quarterly returns.
- "Benchmark Report" is the standard SEBI-mandated report; "Performance Report" is the customised, consent-based one.
- CRISIL, NSE and Preqin are the three agencies named, appointed by IVCA.
Check yourself
1.Under the Global Investment Performance Standards, an AIF should present annual compliant investment performance for a minimum period of:
- a)three years, building to five years
- b)five years or since inception, adding a year each year and building to a minimum of ten years
- c)ten years from the outset
- d)one year from first close
Show the answer
Answer: (b) five years or since inception, adding a year each year and building to a minimum of ten years
GIPS requires an AIF to present annual investment performance, compliant with the GIPS, for a minimum period of five years, or since the inception of the fund, and prospectively, the AIF must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance. Option (d) is the benchmarking agency reporting trigger — an AIF reports to a benchmarking agency once it has completed a minimum of one year from the date of first close.
Where this is taught
- Series XIX-B · Chapter 6: Fees Structure, Fund Performance and Benchmarkingintroduced here
- Series XIX-A · Chapter 8: Fund Due Diligence - Investor Perspectiveintroduced here
- Series XIX-C · Chapter 10: Introduction to Indices and Benchmarkingintroduced here
- Series XIX-E · Chapter 8: Indices and Benchmarkingintroduced here
- Series XIX-D · Chapter 7: Fund Performance and Benchmarking of AIFsintroduced here
Related terms
- Category III AIFThe AIF category for funds running diverse or complex trading strategies with leverage — hedge funds and their kin — and the only category denied tax pass-through status.
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- AlphaThe return a fund earned above what its beta and the benchmark say it should have earned — the slice of performance left over once the market has been given credit for its share.
- BenchmarkThe independently published index a scheme's performance is measured against, chosen to match its investment objective, asset allocation and strategy, and disclosed in the Scheme Information Document.
- First CloseThe date an AIF scheme declares it has raised enough commitments to proceed — the point from which tenure, management fees and set-up cost amortisation all start running.
- Net IRRAn AIF's IRR measured at the investor level, after management fees, incentive fees, fund expenses and taxes — always below the fund's Gross IRR, sometimes far below.
- Market Risk PremiumThe excess return a benchmark index earns over the risk-free rate — the "Rm − Rf" term in the CAPM formula used to compute a Category III AIF's expected return and alpha.
- Absolute-return StrategyA Category III AIF strategy that aims to make money independent of broad market moves, using leveraged, concentrated, long/short or market-neutral positions, and benchmarked to a fixed rate rather than an index.
- Performance ReportA customised, fee-based performance comparison a Benchmarking Agency prepares at an AIF's request — named a Performance Report to keep it distinct from the standard Benchmark Report.
- Vintage YearThe year in which a fund first delivers investment capital — the marker used to compare private funds that started investing at the same point in the economic cycle.
- Performance BenchmarkingSEBI's mandatory regime under which every AIF scheme past one year from first close reports cash flow and valuation data half-yearly so that industry benchmarks can be built and each scheme measured against them.