Alternative investment funds (AIFs) witnessed an impressive growth of 72% in their assets under management in FY 2015-16.
The commitment raised (roughly equivalent to AUM in MF parlance) as on March 2016 has increased to Rs. 38,879 crore from Rs. 22,612 crore in the corresponding period last year, shows the latest 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. 12,085 crore in March 2015 to Rs. 24,061 crore in March 2016.
Similarly, Category I recorded a healthy growth of 22% 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. 10,568 crore as on March 2016 as against Rs. 8,663 crore in March 2015.
While infrastructure funds have raised commitments of Rs. 6,788 crore, the AUM of social venture funds and venture capital reached Rs. 735 crore and Rs.2,884 crore respectively as on March 2016.
Interestingly, Category III which includes hedge funds, saw a massive jump of 128% in its commitments. The commitment raised in this category has gone up to Rs. 4,249 crore in March 2016 from Rs. 1,864 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 extended 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 under the category of AIFs.
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.
Currently, AIFs have a limited set of investors such as corporates, UHNWIs and PSU banks because of the Rs. 1 crore ticket size. To attract a bigger pool of investors, SEBI has recently allowed Foreign Portfolio Investors (FPIs) to invest in units of REITs, Infrastructure Investment Trusts (InvIts) and Category III AIFs. As on March 2016, there are 209 AIFs registered with SEBI.
IFAs can also sell AIFs. The commissions offered by AIFs are comparatively better than other market linked financial products. However, only a few advisers are selling these products because of the high minimum ticket size, which is typically Rs. 1 crore and above.
To understand the challenges and opportunities in this space, a panel moderated by Umang Papneja, CIO, IIFL Wealth will discuss the opportunities that AIFs provide at Cafemutual Conference: Wealth Management 2016. The panelists are Akshay Gupta, Group Executive Head, Indiabulls, Akshay Mansukhani, Partner Malabar Investments LLC, Gaurav Pant, Portfolio Manager, DSP BlackRock AIF and Sanjay Nath, Co-founder & Managing Partner, Blume Venture Advisors.
Click here to know more about Cafemutual Conference: Wealth Management 2016.
