PremiumGlobally the largest investors in alternative investments are institutions. Domestic institutional capital from pension and retirement funds, sovereign funds, insurance funds, etc., can further propel industry growth, the IAAIF report said
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With investors looking beyond traditional retail-oriented investments, Category III alternative investment funds (AIFs) are gaining traction and are expected to witness three times growth over the next five years to surpass ₹1.7 lakh crore in assets under management (AUM), according to the Indian Association of Alternative Investment Funds (IAAIF).
AIFs are privately-pooled investment vehicles that collect funds from sophisticated investors. Category-III AIFs include hedge funds, which invest in public markets. On the other hand, Category I AIFs invest in start-up or early-stage ventures, while Category II AIFs include real estate funds, private equity funds and funds for distressed assets.
Out of the total AIF 831 funds, 475 are in the Category II followed by 196 in Category I and 160 in Category III. Notably, Category II AIFs contribute 80% to the industry.
In 2021, 122 AIFs launched were For CAT-III AIFs and the number of funds has grown two times in the last five years.
“Globally the largest investors in alternative investments are institutions. Domestic institutional capital from pension and retirement funds, sovereign funds, insurance funds, etc., can further propel industry growth," the IAAIF report noted.
According to the report, the AIF industry is the fastest growing investment platform in India when compared with a traditional mutual fund or PMS industry. Assets under management in AIFs have grown by more than 70% in the last five years versus 14-16% for mutual funds or portfolio management services (PMSes).
Globally, the alternatives industry is expected to grow 17-20% of the total Industry AUM by 2024 and around 50% of the alternative asset growth is likely to come from emerging markets.
The research further highlights that for the next leap of growth in the industry, institutional capital will be needed.
Amit Saxena, director and head-alternative investments, Dolat Capital said, “With rising affluence and a preference for a wider variety of risk-return combinations that can be generated across asset classes, AIFs are emerging as strong alternatives to grow wealth and investments. Recent years have seen the global alternative industry grow at a rapid pace. This is largely driven by a need to enhance returns and increase diversification."
In a recent report, PMS Bazaar had said that with investors looking beyond traditional investments, the overall AUM of portfolio management Services (PMS) and AIF structures are expected to cross ₹50 lakh crore in the next 10 years.
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