What has helped the popularity of the category 3?
Clients have increasingly started looking for ideas in the listed space. The opportunity is large. Category 3 offers leverage option which is not available in cat 1 & 2. These are changing the way clients are thinking about this space.
What opportunities do you see in equity & long short space?
This is a growing category. Long short is a relatively new space and the number of players here are limited. This throws open a huge opportunity for clients to explore this space. You need a bull market for long only ideas to flourish. In a sideway or a bear market long only ideas may tend to struggle. Also bear in mind that when a small set of stocks outperform the index, it becomes far more difficult to get outperformance. Long short fills this space beautifully.
How do you train your sales team and distributors on AIFs?
Training here should be at two levels. Fundamental training is required for our sales team to understand derivatives and pay offs. Product training meshes fundamental training and its practical usage on how some of these are used in our long short strategies thereby giving them a good understanding of the interplay. Since the category is new, it is important to grow the ecosystem on educating about the space.
You have a Tata Absolute Return fund. What opportunities do you see in the space?
Bulk of client investments are in relative return products i.e. market does well, the product does slightly better and if market does poorly, the product tries to outperform.
Absolute return products are expected to perform in a linear manner irrespective of how market performs. The objective here is to cut directional move of the market and generate consistent returns for investors regardless of market direction. Put differently, this is a pure market neutral strategy, which attempts to generate consistent investment experience to the investor. An investor typically seeks equity like returns but does not like the volatility that it brings along. Likewise, one enjoys the stability of fixed income but seeks better than fixed income return. This space attempts to address some of these problem statements by giving a better than fixed income return with fixed income like volatility.
Why do investment strategies in AIF appeal to wealthy investors?
For a seasoned investor, who has seen it all, is looking for something different and understands the risk associated with it, it becomes a good option to look at. There is a need for an asset class other than equity and debt. Also, it helps them diversify their investments.
What are the opportunities and challenges in distributing AIFs?
The space is in its nascency and opportunities are huge. Clients want to explore newer ideas and diversify their portfolios. Having done active and passive strategies, the next big idea would be to consider market neutral strategies. However, talent pool, product understanding and supply of such products are limited. Hence, it requires greater effort to build distribution since it is more nuanced.
The other challenge that we see in this space is that the vectors for evaluating a long short AIF are not so well developed. How does one parameterize evaluation of such products especially when there are so many variants? These are some challenges that product gatekeepers find difficult to fathom.
Thirdly, it is a very wide space with many different variants and dissimilar risk reward. Both tiger and cat belong to the cat family. However, one mews and the other roars, one is a pet and other is wild! We shouldn’t make the mistake of boxing them together.
Do you see any new scheme launches?
We have recently launched our absolute return and we wish to grow this fund. We will keep this space busy with differentiated ideas, which will complement client portfolios.