Alternate investment funds (AIFs) are no longer alternatives. They are going mainstream as high net worth individuals (HNIs) hunt for higher alpha. Investments in such avenues read close to Rs 1 lakh crore since 2012 while mutual funds have received Rs 9 lakh crore. Of late, tide is turning and the AIF space is growing at an unparalleled pace.
Speaking at the second edition of ETMarkets Global Summit, leading wealth and hedge fund managers said there is enough space for services such as hedge funds, PMS (Portfolio Management Services) and venture funds to grow along with the mutual fund industry. All that matters is alpha generation. PMS discretionary growth has been 50 per cent on a yearly basis, said Shahzad Madan, Head of PMS and AIF at Reliance AMC.
The search for alpha is driving people towards PMS. “Our sense is while mutual fund industry would grow, PMS space will also grow. Alternative investment space does not have to become bigger than MF space. Focus should on generation of alpha and returns,” Madan said.
This is what is driving people moving towards PMS space, he said.
Karan Bhagat, Founder, IIFL Investment Managers, made an interesting point, saying prelisting stage doesn't mean that a company is low in valuation. Investors seek high returns because liquidity is higher in prelisting stage, he pointed out.
The expectation wealthy clients have from AIF managers is that if you are not growing at 20-30 per cent compounded annually, it is not considered good, said Jaideep Hansraj, CEO for Wealth Management and Priority Banking, Kotak Mahindra Bank. Hansraj, whose company has experimented with wealth management products over the last 3-4 years, has seen considerable growth in this segment.
According to Andrew Holland, CEO, Avendus Capital, one of India’s largest hedge funds, it used to be either debt or equity fund earlier, but things have changed. "It is getting difficult for MFs to outperform each other," he said, whose fund grew 6 per cent in the last one year.
“Investors are looking for long-term investment opportunity.” Staying ethical, sustainability and governance are the theme to follow, Holland stressed.
Nikhil Vora, Founder and CEO at Sixth Sense Ventures, hit the nail on the head when he said the only way to make money is to invest in India of tomorrow. But why do investors lose money? It's because they hold the capital, he put it straight. Vora has good reasons why he believes so. "He started his venture fund to invest in leaders of tomorrow. The leaders of today are not necessarily the leaders of tomorrow. If you don't get your breadth of investment right, then you need to worry," he cautioned. “95 per cent leaders of today will die down in a decade.”
India is the most underpenetrated brand market where brand loyalty is falling and awareness is rising. Risk to experiment is much lower than before, he went on to say. “You have a plank on innovation or disruption. Not sure India is for innovation,” Vora observed.
Kunal Upadhyay, Managing Partner, Bharat Innovation Fund, said early-stage investment is tough as a lot of innovation is expected. Hansraj also spoke of retail investors putting a premium on future growth potential whatever the IPO pricing is.