Alternative Investment Funds (AIFs) have become a staple element in the portfolios of High Net Worth Individuals (HNIs) and family offices who believe in informed wealth creation. According to the Securities and Exchange Board of India (SEBI), total AIFs stood at ₹ 8.3 trillion as of March 31, 2023. Although it is a relatively new asset class, low barriers to entry have led to a proliferation of funds of all colors.
Alternative investment funds in India are slightly different due to the peculiarities of certain markets. Many of these funds primarily offer investors exposure to traditional asset classes such as public stocks, high-quality bonds or real estate investment trusts. Note that all three are part of your public stock or bond portfolio and are available through mutual funds, portfolio management services, and exchange-traded funds. These instruments are much more cost-effective for accessing traditional asset classes than alternative investment funds.
Therefore, it would be prudent to consider alternative investment funds for those assets/strategies that are difficult for the investor to access or that require special knowledge or skills and established experience.
Some asset classes and strategies that lend themselves well to alternative investment funds (AIFs) include:
1. Real Estate: This is very illiquid in nature and requires scale and navigation skills (in an industry known for sharp practices). In real estate, specialized subcategories such as shopping centers, offices, data centers, high-quality loans, etc., require special investment and management skills.
2. Stressed Asset Strategies: These are another example of what is a legal and regulatory quagmire that requires resource, litigation and breadth to operate effectively.
3. Capital Investment: Again very illiquid. It requires the ability to understand companies, ensure good management quality and support the company in many matters.
In India, most AIFs are focused on private equity or real estate debt strategies. If the tax reduction of debt funds is equated with other debt investments, more alternative investment funds with a credit strategy will appear in the future.
Considerations to be made before investing in an alternative investment fund (AIF)
First, familiarize yourself with the investment strategy. Do you already have exposure to the strategy offered through existing equity and debt portfolios? When targeting alternative assets, avoid strategies that overlap with your traditional holdings. If it passes the first filter, dig deeper. Previous history and experience are important.
Generally, these assets require special skills, and therefore talent is among the key players in investment management teams. Look for team consistency and cohesion. Also, check the trading alignment of the teams with the results of the fund. This is critical because these products tend to have a long lock and you want management to be there to deliver targeted results.
Then there are other factors like the vintage of the funds and things related to related transactions and the like, all of which need to be checked. Accordingly, the market regulator Sebi has rightly fixed the minimum compensation amount at Rs 1 crore, which can be increased.
All in all, research the investment strategy and see if you have access to truly alternative assets that aren’t already in your portfolio and can’t be easily implemented on your own. Trust a qualified counselor and ask the right questions, and also ask the counselor if they have asked these questions. After all, you have to pay for expert advice to avoid long-term misery! At Rurash Financials, we specialize in offering diverse investment options in multiple asset classes, including Private Equity, Residential & Commercial Real Estate Services, Real Estate Funds, Hedge Funds, and more. Our carefully curated and risk-assessed opportunities are designed exclusively for high-net-worth individuals, institutional investors, and corporate customers.
Our expert team selects provide alternative investment options that open doors to high-yield investments, enabling you to create wealth for legacy building. We believe in investing wealth to build a legacy, and we invite you to be a part of this vision.
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