Demand for private equity and debt funds on the rise

Private equity and debt funds are getting popular among HNIs. SEBI’s latest data shows that the AUM of category II of alternative investment funds (AIFs), which includes private equity and debt funds, has doubled over the last one year.

The category has raised commitment of Rs.87,063 crore, as on December 2017, against Rs.41,065 crore, a growth of 112%.

Commitment raised is roughly equivalent to AUM in mutual fund parlance.

“There has been an increase in demand for alternative investments among HNIs as they seek non-conventional instruments to generate higher returns. Second, the category is vast. It includes private equity, private debt and real estate funds,” said Shazad Madon, Head PMS and Alternative Assets, Reliance Nippon Life AMC. 

Category II funds invest in unlisted companies having sound business model by raising funds from HNIs and FPIs through private equity and debt funds. There are various types of funds under this category, such as real estate funds, private equity funds (PE funds), funds for distressed assets and so on.

Among the other categories, category III or hedge funds, also witnessed healthy increase in the commitment raised. Till the end of December, Rs.28,836 crore worth of commitments were raised under category III. In percentage terms, the category saw the highest increase in commitments raised. Hedge funds marked 186% increase in commitments raised, from Rs.10,079 crore in December 2016.

Andrew Holland, CEO, Avendus Capital Alternate Strategies, attributes the increase in demand for hedge funds to the market rally. “Many investors invest in hedge funds as it protects them from downside risk. Also, the risk adjusted return of hedge funds is better than pure equity funds. Many HNIs have invested in various hedge funds such as long only and long and short funds for better returns,” Andrew said.

A hedge fund is an alternative investment vehicle that pools capital from accredited or institutional investors and invests in a variety of assets, employing differentiated, and often complex, investment strategies. 

Category I, which invests in venture capital and infrastructure funds, also received commitments of Rs.28,836 crore in December 2017.

Overall, the total commitments raised in 2017 was at Rs.141,120 crore. The AIF industry witnessed a healthy growth of Rs.70,853 crore, or 101%, through the year. 

Data relating to activities of Alternative Investment Funds (AIFs)

                                (In Rs crore)

Source: SEBI