The Indian alternative investment sector has witnessed significant growth in assets under management in the three-year period ended December 2015, to around $2.5 billion (funds raised) from $0.6 million. While this is a small part of the $7.4 trillion-global alternative asset industry, the pace of growth can’t be ignored. Mint spoke to William J. Kelly, chief executive officer of Chartered Alternative Investment Analyst (CAIA) Association, to understand the structure and position of this emerging industry and the asset classes and valuation processes that are emerging.
Which type of asset managers choose alternative assets within a portfolio?
The world’s most sophisticated asset owners are likely to be found within the global sovereign wealth funds and the large endowments and foundations.
They long ago discovered the benefits of building a portfolio consisting of a wide set of uncorrelated assets and return streams. By doing this, they have lowered their risk-adjusted return by giving up some of the upside capture of any specific asset class, with the offsetting benefit of lowering their overall drawdown risk. They have thought about a solutions-based approach to the markets and have never tried to time their strategies around any specific asset class.
Alternative investment funds that are available to individual investors usually come with fees that are higher than the standard mutual fund investment. Is this a global trend? Why does it happen?
Most liquid investment funds are young and were launched in the wake of the global financial crisis (GFC). The fees have, typically, been higher than the expense ratio of a traditional mutual fund. As more providers move into this space, it is likely that fees will feel some level of competitive pressure. Getting access to a unique manager with either limited capacity or a stellar track record might always have a bit of a premium price but the access to the simple beta associated with an asset class should be much less expensive in the longer run.
