How do Indian family offices invest money? Decoding their asset allocation

Alternative Investment Funds (AIFs) are gaining traction among Indian family offices as a preferred tool for accessing private markets and startups, showed a report by Sundaram Alternatives, which caters to the investment needs of high net-worth individuals (HNIs) with offerings across Portfolio Management Services (PMS) and Alternative Investment Funds (AIF).

Alternative Investment Funds are investment vehicles that pool capital from investors to invest in assets that are not traditionally considered securities, such as real estate, private equity, venture capital, hedge funds, and commodities. They offer investors an opportunity to diversify their portfolios beyond traditional asset classes like stocks and bonds.

 AIFs offer a diversified portfolio that mitigates risks compared to single investments. "The expertise provided by AIF managers in selecting opportunities across the risk-return spectrum is driving this trend, with many family offices opting for co-investments with existing funds to execute high-conviction strategies with minimal operational challenges," said the report. 

Family offices globally allocate highest proportion to alternatives: The largest allocation within alternatives is directed towards private equity and venture capital.

Indian family offices still predominantly allocate their financial assets to Mutual Funds: Current portfolio allocation towards asset classes

The report also notes that Indian family offices are increasingly embracing alternative investments, with a projected 5% increase in allocations to 18% over the next three years. This aligns with a global trend, where family offices allocate more than 50% of their assets to alternatives. 

"The shift reflects a strategic move toward diversification, niche investment strategies, and active participation in India’s growth story, particularly through startups and innovative ideas," said Sundaram Alternatives.

Indian family offices aim to boost their investments primarily in AIFs, reduce allocations to Fixed income and real estate

How Indian family offices will strategically increase allocations in the next 3 years

The report titled "From Legacy to Leadership," released by Sundaram Alternates, projects that the Assets Under Management (AUM) for mid to large-sized family offices in India will grow at a Compound Annual Growth Rate (CAGR) of 14% over the next three years, potentially increasing by 1.5 times. 

Evolving Asset Allocations: Fixed Income Decreases While Alternatives and Gold See Increases

The report details expected shifts in asset allocations for family offices over the next three years. Allocations to Mutual Funds, PMS, AIFs, and Gold are anticipated to see modest increases, while Fixed Income and Physical Real Estate are likely to experience a decrease. The allocation to startups is expected to remain stable as family offices continue to explore and capitalize on opportunities in this sector.