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With alternate investments taking charge, where are HNIs investing?

Money Control, Oct 29, 2019

Sustained volatility in the equity market and unexpected defaults in the debt market have pushed investors to look at alternatives.

Moneycontrol Contributor@moneycontrolcom

Prateek Pant

In recent times, the understanding and sophistication of high net worth individuals (HNI) in India have increased tremendously.

Structural changes in the real-estate sector and the weakening demand for gold has driven them away from the traditional favourites.

In addition, sustained volatility in the equity market and unexpected defaults in the debt market have pushed investors to look for alternatives.

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There has been an increased interest by HNIs in alternative investment funds (AIFs). This is clearly visible in the sharp increase in the funds raised by AIFs- Rs 1,44,500 crore as of June 2019 compared to about Rs 48,000 crore in June 2017.

When it comes to equity-based investments, absolute return AIFs have become popular.

zThese funds aim to generate consistent returns for investors in all market cycles.

Private equity, venture capital and pre-IPO funds have also garnered strong inflows.

Increasingly, investors have looked to invest directly in the unlisted and start-up companies rather than the blind pools which were managed by private equity funds.

There have been some recent issuances on High yield debt and venture debt where AIFs have bundled structured credit opportunities based on the cash flow of issuers.

New products like REITs and INVITs are finding favour with HNIs to gain financial exposure to the real estate.

Embassy REITs, the first REIT to be listed in India gained almost 35 percent since its launch. To achieve international diversification, investors are using the liberalised remittance scheme (LRS) to acquire bluechip stocks, mutual funds or real-estate outside India.

Even within the traditional asset class, there is an increased focus on ETFs as many active managers struggled to beat the benchmark indices.

Larger equity mandates have been given to boutique portfolio managers that manage separate account mandates through PMS or AIFs.

Finally, new categories of investors have gained prominence who are socially responsible. So like the rest of the world, they are giving increased attention to philanthropic allocations, ESG (economic social governance) and impact funds.

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