With investors looking beyond traditional retail-oriented investments, Category III alternative investment funds (AIFs) are gaining traction and are expected to surpass three-fold growth in the next five years. 1.7 lakh crore in assets under management (AUM), according to the Indian Association of Alternative Investment Funds (IAAIF).
AIFs are privately held investment vehicles that collect money from sophisticated investors. Category-III AIFs include hedge funds, which invest in public markets. On the other hand, Category I AIFs invest in start-ups 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 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 were launched which were for CAT-III AIFs and the number of funds has increased two-fold in the last five years.
“The largest investors in alternative investments globally are institutions. Domestic institutional capital from pension and retirement funds, sovereign funds, insurance funds, etc. can drive the growth of the industry,” the IAAIF report said.
As per the report, the AIF industry is the fastest growing investment platform in India as compared to the traditional mutual fund or PMS industry. Assets under management in AIFs have grown by over 70% over the past five years, compared to 14-16% for mutual funds or portfolio management services (PMS).
Globally, the alternative industry is expected to grow at 17–20% of total industry AUM by 2024 and around 50% of alternative asset growth is expected to come from emerging markets.
The research further highlights that the next leap of growth in the industry will require institutional capital.
Amit Saxena, Director and Head – Alternative Investments, Dolat Capital said, “With increasing prosperity and a preference for a variety of risk-return combinations that can arise across asset classes, AIFs offer strong options for growing wealth and investments. emerging as Recent years have seen the global alternative industry grow at a rapid pace. This is largely driven by the need to increase returns and increase diversification.”
In a recent report, PMS Markets had stated that with investors looking beyond traditional investments, the overall AUM of Portfolio Management Services (PMS) and AIF structures is expected to exceed. 50 lakh crore in the next 10 years.
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