AIF is now a Rs.3.50 lakh crore industry

SEBI’s latest data shows that the industry’s AUM jumped 45% as the commitments raised reached Rs.3.47 lakh crore in December 2019 from Rs.2.39 lakh crore in the corresponding period last year. 

The majority of the investments came to Category II funds (57%) that include real estate funds, private equity funds and funds for distressed assets. Category II funds raised commitments worth Rs.2.60 lakh crore as on December 2019 from Rs.1.65 lakh crore in December 2018. 

Nalin Moniz, CIO-Alternative Equity, Edelweiss Mutual Fund believes that credit funds, which fall under category II funds have gained momentum recently because of speedy resolution process by banks. “Many HNIs have shifted their money from credit risk mutual funds to credit AIFs due to higher flexibility. Many debt funds have been affected by the series of recent credit events.”

Similarly, the Category III funds that invest in long only and long short strategies saw a growth of 18% in commitment raised. The category raised commitments worth Rs.48,151 crore in December 2019 compared to Rs.40,785 crore in the corresponding period last year. 

The Category I funds also saw healthy investments as it raised commitments worth Rs.38,825 crore. Cat I AIFs invest in start-ups or early-stage ventures, social ventures, SMEs or infrastructure funds. Infrastructure fund raised commitments worth Rs.12,679 crore while VC funds AUM reached Rs.23,793 crore as on December 2019. 

“Currently, VC is gaining traction due to increasing investor interest in start-ups,” said Nalin. 

Experts believe many HNIs have entered AIF space due to underperformance in some MF schemes. 

“Due to the polarization in the market, many large schemes have underperformed. As a result, many HNIs have shifted to other investment products like PMSs and AIFs. Apart from this, regulatory changes on the distribution side also pushed many distributors to recommend AIF products to HNIs,” said Chandigarh IFA Iqbal Singh.