Institutions, family offices and high net worth individuals continued to commit large sums of money to alternative investment funds (AIFs) in FY21, according to data from the Securities and Exchange Board of India ( Sebi).
Investors were looking to diversify their holdings and exploit the opportunities of the pandemic-induced upheavals, such as the rapid adoption of digital business modes, which have led to the rapid expansion of tech startups.
According to Sebi data, AIFs have seen commitments worth ₹82,228 crore in FY21, slightly less than ₹86,840 crores in FY20. Admittedly, these figures relate to the commitments made by the fund managers and not the actual money raised, as alternative investment funds generally have staggered capital withdrawal plans and do not need all of the capital committed to the fund. departure.
AIFs are divided into three categories, Category I comprising angel funds, social impact funds, SME funds and infrastructure funds; category 2 includes private equity, venture capital and debt funds; and category 3 funds typically invest in public markets such as hedge funds.
Fundraising was carried out by category 2 AIFs, generalist PE, venture capital and credit funds, raising a ₹74,423 crore in the last fiscal year. “The Alternative Investments asset class has truly matured in India over the past decade and has now become a legitimate source of diversification for HNI / family office portfolios,” said Rohan Paranjpey, Executive Director, Head of Alternative Investments at Waterfield Advisors, a multi-stakeholder company. family office and asset consulting firm.
“There are several high quality fund managers in the PE / VC space now, compared to just five years ago. Most of these managers have built a track record and are in their second or third fund. Concerns about the generation of outflows / cash have been addressed to a large extent, “he added.
The growing interest of HNIs and family offices in allocating capital to AIFs is primarily to gain access to fast-growing technology companies, to which these investors may not have direct access and also to increase their portfolio returns. global.
“As these funds (VCs and PEs) support the meteoric growth of the technology-based start-up ecosystem, companies in the healthcare and consumer sectors, with high growth and visibility in times of pandemic. Investing directly in these funds, putting money in these funds gives HNIs and family offices a chance not only to invest in the success of the start-ups in the country, but also in the overall growth, ”said Ashish Gumashta , CEO of Julius Baer India, management company.
“The past 12 months have seen some interesting regulatory activity on land as well as in GIFT City. Category II AIFs remain the preferred structure for onshore private fund strategies. Touchstone Partners law firm.
However, even though large sums of capital have been committed to AIFs under the Category 2 channel, Category 3 AIFs, which invest heavily in public market strategies, have seen their interest wane. These funds have succeeded in raising commitments worth ₹799.8 crore in FY21.
“Over time, they have fallen out of favor with HNIs, family offices and corporations due to their highest marginal tax rate, lack of tax compensation benefits, and their partially liquid nature. . The tax on category 3 AIFs is applied to the fund rather than to investors, which, in the case of long-short hedge funds, is at a marginal rate compared to the lower tax applicable to non-individuals ”, Gumashta said.
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