Private equity and debt funds receive massive inflows

HNIs are increasingly investing their money in alternative investment funds. SEBI data shows that Category II of AIF, which includes private equity funds and private debt funds have raised commitment of Rs.58,000 crore in June 2017.

Last year, the category raised commitment of Rs.27,000 crore indicating a massive growth of 110% or an increase of Rs.25,000 in its commitments. Commitment raised is somewhat equivalent to AUM in AIF parlance.

Category II funds invest in unlisted companies having sound business model by raising funds from HNIs and FPIs through private equity and debt funds.

Experts attribute this to ease of taxation norms for foreign investors. Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital says that most AIFs have been channelizing funds from foreign countries. “Private equity and debt funds have seen growth due to clarity in taxation. Investors from countries like Mauritius and Singapore have started investing in these instruments after the government has clarified on the norms related to double taxation. In addition, the market regulator has eased norms to receive funds from offshore funds,” he says.

Another factor that has contributed to the growth of private equity and debt funds is implementation of GST. Anupam Guha, Head - Private Wealth Management, ICICI Securities says, “GST is likely to benefit organised sectors and themes such as consumption, logistics and pre-IPO attractive going forward. Sensing this, many HNIs, ultra HNIs and family office have taken strong position in these sectors pre-GST implementation.”

Also, the market rally has attracted HNIs to invest in AIFs. Nalin Moniz, CIO-Alternative Equity, Edelweiss Global Asset Management says that there is a lot of demand for private equity. “It is seen that in the current scenario a lot of companies are deferring their plans to go for IPO. They remain in the private space for a good 7-8 years. This has attracted HNIs to take exposure to these companies through private equity route,” says Nalin.  

Similarly, Vikas too believes that the current scenario has made it easier for companies to go for IPOs. “It provides an opportunity for the private equity firms to exit a company if it desires to. This has also led to an increase in interest for investee companies for PEs which are likely to go for IPOs,” says Vikas

Vikas pointed out that real estate funds of category II has been gaining traction. “The real estate is in a challenging phase considering introduction of Real Estate Regulatory Authority (RERA) and hence a lot of investors are taking the help of fund manager to manage this asset class,” says Vikas.

Apart from category II, category I (venture capital funds and infrastructure funds) and category III (hedge funds) have witnessed healthy growth.

While category I has raised commitment of Rs.22,300 crore, category III raised 15,644 crore in June 2017.

Nalin say that many HNIs prefer low volatility in their portfolio. “Hedge funds use derivatives to hedge against unfavourable market condition. These funds are gaining traction among HNIs as a means to get equity returns minus the volatility,” says Nalin.

Joydeep Sen of Sen & Apte Consulting Services says that the flexibility on remuneration is also helping the category add more assets under its belly. “In the financial services industry, certain products have to be 'sold' by the intermediary. Simply put, customers need hand-holding. In the mutual fund industry, there are caps on broker remuneration i.e. 1% upfront. On the AIF platform, there is flexibility on remuneration, which is another aspect adding to its popularity,” says Joydeep Sen.

Data relating to activities of Alternative Investment Funds (AIFs)

Source: Sebi

Rs in crores