Alternative investment funds (AIFs) witnessed an impressive growth of over 56% in their assets under management in just one year. The commitment raised (equivalent to AUM in MF parlance) as on December 2015 has increased to Rs. 30,687 crore from Rs. 19,680 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 funds which invest in PE funds has grown drastically from Rs.10,302 crore in December 2014 to Rs.16,198 crore in December 2015. While PE firms have raised fresh funds of Rs.9,000 crore, these firms have invested Rs.7,600 crore in the current financial year.
Similarly, Category I recorded a growth of 26% in commitments raised. The AIF Category I funds invest in start-up or early stage ventures, social ventures, SMEs or infrastructure funds. This category has raised commitments worth Rs. 9,935 crore as on December 2015 as against Rs. 7,879 crore in December 2014.
While infrastructure funds have raised commitments of Rs. 6,876 crore, the AUM of social venture funds and venture capital reached Rs. 660 crore and Rs.2,238 crore respectively as on December 2015.
Interestingly, Category III which includes hedge funds, saw a massive jump in its commitments. The commitment raised in this category has gone up to Rs.4,554 crore as on December 2015 from Rs.1,500 crore in the corresponding period last year.
Experts attributed this to the growing popularity of AIFs among HNIs. “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,” said a senior official from a private wealth firm. The Budget 2015 has accorded tax pass-through status to all AIF categories.
Another key reason which experts have pointed out is the volatility in the equity market which is making HNIs move to alternate funds.
A recent Karvy Wealth Report 2015 showed that the total individual wealth in alternate assets including Alternate Investment Funds (AIFs) stood at Rs.41,960 crore in FY15, growing by 77% from the previous financial year. However, the report has included structured products and gold ETFs.
Another 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, states the report.
As on December 2015, there are 158 AIFs operational in India.
Financial advisers can distribute AIFs; however, only a few advisers are offering these product to their clients. The minimum ticket size under AIFs is Rs. 1 crore.
