How first-time fund managers can navigate headwinds

This allows Indian fund managers to be optimistic about the overall potential for successful fund deployment and is reflected in the overall growth of the Indian domestic fund industry, with over a thousand AIFs now registered with SEBI. A recent publication has also predicted a strong growth rate of AIFs over the next few years, mainly based on the growing number of HNIs and the growing acceptance of alternative investment products.

The Government of India has also continued to encourage innovation and overall development of the startup ecosystem through initiatives such as Startup India, Atal Innovation Mission, Startup India Seed Fund etc. Looking forward to leveraging this base to raise further funds, the industry has indeed seen many first-time fund managers setting up their own platforms.

With India becoming the most populous country, the overall consumption and growth story continues to provide opportunities for fund managers to explore niche investment themes and differentiated investment offerings while entering the fundraising market for the first time.

Additionally, while the AIF industry is growing fairly well, it still represents a very small portion of the global alternative fund industry. With various changes in the regulatory framework such as the International Financial Services Centers (IFSC) Fund Management Regulations and new foreign investment guidelines, the ability to explore investment opportunities globally is likely to allow fund managers to expand their horizons for the first time Is. Even across borders. Of course, like any entrepreneurial journey, first-time fund managers also face various challenges as they set up the fund. Apart from typical issues such as managing costs, attracting the right talent, and negotiating competitive fees, there are some specific issues that first-time fund managers may need to address.

For example, they may try to quantify and obtain validation of their performance track records in some way, even though it is not easy to define the contribution of particular individuals to the success of an investment, especially in an institutional setup. In.

Additionally, taking into account the size of the team and their own background, first time fund managers may need to plan appropriately to comply with specific regulatory requirements such as educational qualification, investment experience and net worth requirements etc. Is.

Another area of ​​challenge is the ever-evolving tax and regulatory landscape, which may affect some of the assumptions made at the drawing board stage. Therefore, it would be useful for first time fund managers to leverage their network of advisors to stay updated on relevant changes.

Also, sometimes, while the ideal structure for a fund may be slightly different, first-time fund managers may be forced to start with a less-optimal structure due to lack of a team or lack of time.

While all fund managers walk a tightrope in terms of managing investor expectations, identifying investments and conducting due diligence, nurturing the portfolio and preparing for a successful exit, first-time fund managers may find themselves more hurdled due to certain constraints . The above constraints and they may need to be flexible to adapt their structure to the changing structure.

Having said that, the potentially significant profits at the end of this journey and the satisfaction of building a personal brand and strategy will continue to encourage first time fund managers to step up and test the waters.

Himanshu Mandaviya is Partner, Price Waterhouse & Company LLP. Thoughts are personal.

Updated: June 01, 2023, 09:38 PM IST