First Time Manager
Also written First time fund manager
An AIF manager without a track record of its own previous funds. The PPM must say so, and must disclose the previous funds with which each member of its investment team was associated.
In plain language
Investors choosing an AIF are largely choosing a manager. The best evidence of a manager's skill is what its previous funds did.
A First Time Manager has no such history as a manager. The SEBI PPM template does not let that gap go unmentioned: the PPM must state categorically whether the manager is a First Time Manager or an Experienced Manager.
A first-time manager fills the gap the only honest way available — by disclosing the previous funds with which the individual members of its investment team were associated. The investor then judges the people, since there is no firm-level record to judge.
How it works
The PPM rule (Chapter 8, section 8.5 — Section VI: Track Record of Manager). The PPM shall categorically specify the type of manager: (i) First Time Manager or (ii) Experienced Manager. In the case of a first time manager, disclosure is made in relation to previous funds with which individual members comprising the investment team for the fund or scheme were associated.
What a track record section contains for each previous fund (in tabular form, a separate table for each fund):
| Item | Note |
|---|---|
| Investment strategy and size of the fund | |
| Historical performance over 6 months / 1 / 3 / 5 years | Applicable for Category III AIFs |
| Number of investments and amounts deployed | |
| Gross IRR | |
| Gross MOIC | Multiple on invested capital |
| DPI | Distributed to paid-in |
| RVPI | Residual value to paid-in |
| TVPI | Total value to paid-in |
| Portfolio companies and exits |
The PPM audit. AIFs must audit compliance with the PPM annually. Audit of certain sections is optional: Risk Factors; Legal, Regulatory and Tax Considerations; Track Record of First Time Managers; Illustration of Fees and Expenses; and Glossary and Terms. Findings go to the trustee, board or designated partners, the manager's board and SEBI within 6 months of the financial year end.
Why investors care (Chapter 7). The first fund-level risk the workbook lists is adverse selection: choosing the right manager is difficult, PPMs sometimes make forward-looking statements or show a track record that is no assurance of future performance, and choosing wrongly means sub-optimal returns or moral hazard. With a first-time manager, the record shown belongs to individuals working inside other organisations — useful, but not the same as the new firm's own results.
A naming slip. The PPM list in the workbook expands RVPI as "Residual Value in Multiple"; elsewhere the measure is residual value to paid-in capital.
A worked example
Arya Growth Partners (illustrative throughout) is launching its first Category II AIF, Arya Growth Fund I, targeting Rs 250 crore. Its three partners previously worked at other private equity firms.
Section VI of the PPM.
| Statement | Arya's disclosure |
|---|---|
| Type of manager | First Time Manager |
| Partner A | Deal lead at Fund X (Rs 800 crore, 2014 vintage): 11 investments |
| Partner B | Investment committee member at Fund Y (Rs 1,200 crore, 2016 vintage) |
| Partner C | Principal at Fund Z (Rs 500 crore, 2018 vintage): 6 investments |
For each fund, the table shows strategy, size, investments made, amounts deployed, Gross IRR, Gross MOIC, DPI, RVPI and TVPI, and exits.
How an investor reads it. Fund X shows a TVPI of 2.1x and a DPI of 1.6x. That means Rs 1.60 has already been returned for every Rs 1 paid in, and Rs 0.50 is still held as residual value (2.1 − 1.6 = 0.5 RVPI). But Partner A was one deal lead among several; the result belongs to Fund X's whole team and platform. The investor must judge how much of it travels with one person to a new firm — the adverse-selection risk the workbook describes.
The audit. At year end Arya's PPM audit may skip the Track Record of First Time Managers section; it is one of the optional sections.
Why NISM asks about it
Chapter 8 (Legal Documents and Negotiations), section 8.5 on the PPM — Section VI, Track Record of Manager — carries the First Time Manager rule and the track record contents; section 8.5.3 lists the optional PPM audit sections; Chapter 7 (Fund Performance and Benchmarking of AIFs) describes adverse selection risk. Expect a question on what a first time manager must disclose, and a "which PPM section's audit is optional" question.
Common exam traps
- The PPM must categorically state First Time Manager or Experienced Manager. Silence is not an option.
- A first time manager discloses the previous funds its individual investment team members were associated with — not nothing, and not the sponsor's unrelated businesses.
- Auditing the "Track Record of First Time Managers" section is optional, along with Risk Factors, Legal/Regulatory/Tax, Illustration of Fees and Expenses, and Glossary.
- PPM audit findings go to SEBI within 6 months of financial year end.
- Historical 6-month to 5-year performance applies to Category III AIFs; Category I and II records rest on IRR, MOIC, DPI, RVPI and TVPI.
- A track record is no assurance of future performance — the adverse selection risk.
Check yourself
1.The findings of the mandatory annual PPM compliance audit, along with corrective steps, must be communicated within what period and to whom?
- a)Within 3 months of the financial year end, to SEBI only
- b)Within 6 months of the financial year end, to the Trustee or Board or Designated Partners of the AIF, the Board of the Manager, and SEBI
- c)Within 1 month of the financial year end, to the investors and the benchmarking agency
- d)Within 12 months of the financial year end, to the merchant banker who filed the PPM
Show the answer
Answer: (b) Within 6 months of the financial year end, to the Trustee or Board or Designated Partners of the AIF, the Board of the Manager, and SEBI
The findings, along with corrective steps if any, must be communicated within 6 months from the end of the financial year to three recipients:
- the Trustee or Board or Designated Partners of the AIF
- the Board of the Manager
- SEBI
The audit itself is mandatory annually at the end of each financial year and may be carried out by an internal or external auditor or a legal professional. Audit of five sections is optional: Risk Factors; Legal, Regulatory and Tax Considerations; Track Record of First Time Managers; Illustration of Fees and Expenses; and Glossary and Terms.
The report follows a standard format prepared by SEBI in consultation with the pilot Standard Setting Forum for AIFs (SFA) and is submitted on the SEBI Intermediary Portal.
Do not confuse this six-month deadline with the separate rule that changes in PPM terms are intimated to SEBI on a consolidated basis within 1 month of the financial year end.
Where this is taught
Free preparation for NISM Series XIX-DRelated terms
- Private placement memorandumThe offer document of a Category III AIF, filed with SEBI through a merchant banker at least 30 days before a scheme launches — and the document SEBI comments on but never approves.
- Residual Value to Paid-in CapitalThe unrealised multiple: the estimated fair value of a fund's unsold investments divided by paid-in capital. It dominates early in a fund's life and falls to zero once every investment is exited.
- Total Value to Paid-in CapitalA fund's investment multiple: cumulative distributions plus the residual value of unsold investments, divided by paid-in capital — equivalently, DPI plus RVPI.
- Adverse selectionThe risk of ending up with the wrong manager — picking a fund on a track record or a forward-looking statement that does not predict performance, and getting sub-optimal returns or moral hazard instead.
- Internal Rate of ReturnThe rate at which the present value of an investor's cash outflows equals the present value of inflows — an annualised return that, unlike ROI, accounts for when each cash flow happened.
- Distributions to Paid-in CapitalCumulative cash actually distributed to investors divided by the capital they have paid in — the realisation multiple, and the one return measure a fund cannot flatter with its own valuations.
- Warehousing of dealsBuilding a pipeline of investment deals before a fund achieves its first close — a normal part of fund-raising, and not to be confused with warehousing of investments, which parks securities for later transfer.