Less than a decade since launch, AIF commitments to cross Rs 7 trn mark

There is optimism that the Rs 7 trillion mark will likely be crossed soon, given the recent momentum

A relatively recent class of investment vehicles for the wealthy is expected to have crossed Rs 7 trillion in commitments less than a decade after launch.

The Rs 38.4 trillion mutual fund industry took decades after the launch of the first scheme was launched in 1963 to get to similar levels in nominal terms. The alternative investment fund (AIF) segment began gathering assets in financial year 2012-13 (FY13). The AIF segment has a minimum investment threshold of Rs 1 crore unlike mutual funds which can also absorb investments of less Rs 1,000.

There is optimism that the Rs 7 trillion mark is likely to be crossed soon given the recent momentum.

Wealthy families looking for better yield on their investments, as well as opportunities in emerging sectors which don’t yet have representation in the public markets, are all helping drive growth; suggested Anshu Kapoor, President and Head, Investment Management at Edelweiss Wealth.

“There is a very healthy demand for alternative products,” he said.

Piyush Gupta, director (funds and fixed income research) at Crisil; while reluctant to project a definitive timeline, suggested that the relative size of the industry and recent surge in interest may act in favour of the industry crossing the Rs 7 trillion mark in commitments.

 “If you look at the pace of growth…if that sustains, then I think they may cross it,” he said.

“If you take the number of AIF licenses….it is more than PMS licenses,” said Daniel GM, founder-director at industry-tracker PMS Bazaar which also tracks AIFs.  There are 384 PMS providers which also cater to wealthy investors with a minimum ticket sizeof Rs 50 lakhs compared to 1,018 AIFs. The PMS segment however manages Rs 25.8 trillion of which Rs 18.6 trillion is from vehicles like the Employees' Provident Fund Organisation (EPFO). The money is largely invested in passive vehicles which track the market. The remainder is Rs 7 trillion, close to the current commitments of the AIF industry.

Commitments (which denote the money that clients are willing to put into funds) are up more than 80 per cent since March 2020, when the pandemic first took hold. Funds raised (or client money which has already found its way into AIFs) and investments made (capital allocated by the AIFS themselves) have also grown as much or more. It has Rs 6.9 trillion in commitments as of June 2022, has raised Rs 3.4 trillion and invested Rs 3.1 trillion, shows data from the Securities and Exchange Board of India (Sebi). It releases AIF data with a lag on a quarterly basis.

The returns have not been encouraging across the board. A Crisil index of category I AIF returns shows that it outperformed the S&P BSE Sensex in only four out of the eight periods for which data was available.   A similar index for category II funds outperformed in only one out of the eight periods with available data. The category III funds outperformed in only one out of four time periods for which data was available. The statistics are based on the September 2021 Crisil AIF Benchmark report.

“These are close-ended structures and a lot of the funds have not completed their full period,” pointed out Crisil’s Piyush Gupta.

A category I AIF investments includes social venture funds, infrastructure schemes, venture capital funds which invest in start-ups, as well as schemes allocating capital to in small and medium enterprises. Category II AIFs involve private equity and distressed asset funds. Category III funds include hedge funds.

Category I AIF investments include:

• Social venture funds.
• Infrastructure schemes.
• Venture capital funds investing in start-ups.
• Schemes allocating capital to small and medium enterprises.