Signs of slowdown in AIF with 45% YoY drop in new launches since March

August has had four new funds with about 10 days to go. The three-month moving average would drop to 5.33 funds, the lowest in 58 months, if no new ones are granted registration

There might be some signs of fatigue in new launches of sophisticated funds for wealthy investors, going by the fewer number of new funds registered over the past four months.

Seventy-nine new alternative investment funds (AIFs) were registered between March and July 2019, but this dropped 45.6 per cent to 43 over the corresponding period in 2020, shows an analysis of regulatory data. The date of validity of the registration has been considered for slotting funds by month for the analysis.

August has seen four new funds with around 10 days to go. This would be the lowest in 58 months.

Covid-19 is believed to be a major deterrent, according to experts. Tushar Sachade, partner-tax and regulatory services at PricewaterhouseCoopers, said uncertainty because of the pandemic has affected registrations as people are reluctant to make new investments. “New fundraising will be challenging at this time,” he said.

AIFs fall under three categories. The first invests in early-stage companies like technology start-ups, or put money into social ventures or small and medium enterprises (SMEs). Funds for distressed assets or real estate funds are found in the second category. Hedge funds that use complex trading strategies to make money in the stock market come under the third category.

 

 

Many fund managers operate under the portfolio management services (PMS) structure, which has a lower minimum investment requirement than AIFs. Portfolio managers with growing assets often prefer to eventually register themselves under the third category. This switch might have been accelerated after the Securities and Exchange Board of India (Sebi) raised the minimum investment in January, according to experts.

A partner at another consultancy said a lot of portfolio managers had converted into AIFs in anticipation of an increase in minimum investment amount. The regulator eventually doubled it to Rs 50 lakh in January. This rush to change to an AIF model resulted in many new applications. These might have slowed since, according to him. The AIF industry had invested Rs 1.4 trillion till the end of 2019, shows regulatory data. It had raised Rs 1.7 trillion out of a total commitment from investors of Rs 3.5 trillion. The second category of AIFs had the largest commitment, worth Rs 2.6 trillion. 

A source also suggested that processing might have slowed in light of reduced manpower because of Covid-19. An email sent to the regulator on Wednesday did not elicit any response.