Alternative investment funds (AIFs) have witnessed an impressive growth of over 70% in their assets under management in just one year. The commitment raised (equivalent to AUM in MF parlance) as on June 2015 has increased to Rs.24,896 crore from Rs.14,598 crore in the corresponding period last year, shows SEBI data.
The growth was largely due to rising interest of HNIs in private equity (PE) funds. The commitments raised in Category II which invests in PE funds, has doubled over a year i.e. from Rs.7,000 crore in June 2014 to Rs. 13,900 crore in June 2015. While PE firms have raised fresh funds of Rs.7,592 crore, these firms have invested Rs.5,600 crore in the first quarter of FY 2015-16.
Similarly, Category I recorded a growth of 31% in its commitments. The AIF Category I invests in start-up or early stage ventures, social ventures, SMEs or infrastructure funds. This category has raised commitments worth Rs.8,864 crore as on June 2015 as against Rs.6,760 crore in June 2015.
While infrastructure funds have raised commitments of Rs.6,892 crore, the AUM of social venture funds and venture capital reached Rs.596 crore and Rs.1,241 crore respectively as on June 2015.
Interestingly, the Category III which includes hedge funds, saw a massive jump in its commitments. The commitment raised in this category has gone up to Rs.2,123 crore as on June 2015 from Rs.836 crore in the corresponding period last year.
Sriram Iyer, Chief Executive Officer, Wealth Management, Religare Private Wealth attributed this growth to gaining popularity of AIFs among HNIs. “This growth is largely on account of inflows in real estate through private equity and venture capital route. HNIs tend to chase stable returns which they expect to find in real estate AIF. In addition, ‘pass through’ taxation status has helped the AIF industry to grow.” The Budget 2015 has accorded tax pass-through status to all AIF categories.
“Those who had invested in fixed income, gold and physical properties didn’t get the kind of returns they were expecting. Hence, these investors have moved to other asset classes like equities and alternative investments. Since the new government has given thrust to the manufacturing sector, people have started parking their money in private equity, venture capital and hedge funds,” said Vikas V Gupta, EVP – Traded Market & Investment Research, Arthveda.
A recent report called ‘Top of the Pyramid 2015’ released by Kotak Wealth Management said that 40% of ultra-rich preferred to invest in IT and e-commerce industry through PE investments and 39% of them preferred to invest through venture capital (VC) route. After technology, real estate and financial services were the second and third most preferred sectors for investments through PE and VC route, added the report.
As on June 2015, there are 158 AIFs operational in India.
Financial advisers can distribute AIFs; however, only a few advisers are offering this product to their clients. The minimum ticket size under AIFs is Rs.1 crore.
