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Edelweiss Insights Ultra HNIs fall in love with alternative assets

Ultra HNIs fall in love with alternative assets

In just four years, allocation is up from 4% to 14% of total corpus.
Padmaja Choudhury Feb 24, 2018

Ultra HNIs have been increasingly investing in alternative investment funds (AIFs).

Ultra HNIs have hiked their allocation in alternative investment funds (AIFs) to 14% of the total corpus as on September 2017, shows ‘Top of the pyramid’ study by Kotak Wealth. Only six months before that, in March 2017, the allocation was 11%.

The report shows that ultra HNIs had just 4% allocation in alternative assets in FY2013.

The study notes that although pure equity is likely to remain a preferred asset class, the allocation to AIFs has been rising, as these individuals prefer diversifying their investments across asset classes. Around 45% of the ultra HNIs said that they will increase their investments in alternative investments while 41% of them intend to stay steady.

Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, attributes this to the lacklustre performance of physical assets. “Real estate was once the favourite asset class of ultra HNIs. But they are now shunning real estate, due to its poor performance, and have moved to riskier assets, such as equity and alternative investment funds. Ultra HNIs are willing to commit for three to five years in illiquid investments, like AIFs, hoping that it will fetch them handsome returns,” Vikas said.

The CEO of a leading wealth management company thinks, “It is a question of right asset allocation. Earlier, ultra HNIs were underweight on alternative investments. Hence we find that ultra HNIs have increased their exposure to private equity, real estate funds and high yield debt.”

Out of the different categories of alternative investment, the demand for private equity remained strong.  “Private equity is now seen as a credible source of capital by ultra HNIs. Deal flow in private equity has become both stronger and broader, with investments in a larger variety of sectors. This has led to a spike in entrepreneurial activity,” the study showed.

The CEO believes that the demand for private equity has increased because ultra HNIs look forward to opportunities that excite them. “A lot of ultra HNIs enter into deals with start-ups as angel investors and co-investors. They want to share their business acumen with young entrepreneurs. They set aside a portion of their wealth for such investments,” he adds.  

Vikas does not quite agree. Ultra HNIs are entering into private deals because they anticipate making manifold returns when the company is listed on the bourses, he believes.

SEBI data shows that as on September 2017, out of Rs1.16 lakh crore commitments raised by AIF, commitments of over 60%, or Rs.70,498 crore, was in category II, which includes private equity.


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