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Assets of alternative investment funds (AIFs) have nearly doubled in the last two years as wealthy individuals and family offices look beyond traditional investment avenues for portfolio diversification and higher risk-adjusted returns.
Total AIF assets grew to ₹6.41-lakh crore as of March 2022 from ₹3.70-lakh crore as of March 2020.
AIFs are similar to mutual funds; they pool money from private investors from India and overseas and invest them as per a defined investment policy. AIF has a minimum investment limit of ₹1 crore.
Popular among HNIs
“Given the various strategies available under AIFs, these products have become popular among high net-worth individuals (HNIs). Also, many of these strategies have no or low correlation with public markets, which makes them a preferred investment vehicle,” said Vishal Chandiramani, Managing Partner- Products & COO, TrustPlutus Wealth (India).
There are three categories of AIFs — category I AIFs invest in venture capital funds (including angel funds), social impact funds, SME (small and medium enterprise) funds and infrastructure funds; category II funds include real estate funds, private equity funds, distressed asset funds, structured credit and venture debt funds; category III AIFs employ different trading strategies like long-short, arbitrage, fixed income and derivatives trading.
Category II AIFs account for over 80 per cent of total AIF assets. Assets under this category stood at ₹5.2-lakh crore as of March 2022, growing over 46 per cent year-on-year.
IPO craze
“Growth in category II has been driven by improved environment and sentiments around private/tech companies, especially with multiple large exits witnessed through M&A and IPOs,” said Nishant Agarwal, Managing Partner & Head – Family Office, ASK Wealth Advisors.
TrustPlutus’ Chandiramani said, “With the run up in equity markets in the first three quarters of FY22 and the number of IPOs, investors have become aware of ideas such as pre-IPO and private equity funds and seek to take exposure to such schemes as part of their overall portfolio.”
Indian capital market witnessed record initial public offerings (IPOs) in FY22 as a total of 52 Indian corporates mopped an all-time high of ₹1.11-lakh crore in public issues.
Structured debt
The abysmally low returns from fixed income products and debt mutual funds have also encouraged HNIs to look for alternatives like structured credit funds or venture debt for higher returns.
“At an investor level, there is more interest emanating in these specialised offerings ranging from structured debt on one hand to real estate and venture debt on the other. Most of the investors seem to be early adopters migrating from the conventional MF fixed income space,” said Vikaas Sachdeva, CEO, Emkay Investment Managers. Over 76 per cent of the company’s recently closed Emkay Emerging Stars IV investors were new to the fund.
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