India’s super rich doubled commitment to invest through private equity, venture capital and real estate funds in a year as they chase alternative investments.
Commitments to invest through what are called category-II alternative investment funds was Rs 2.05 lakh crore (nearly $30 billion) as of March, according to data released by the Securities and Exchange Board of India. That compares with Rs 1.05 lakh crore a year earlier.
Of the promised amount, the funds have raised close to Rs 83,554 crore as of March. That’s an increase of more than Rs 33,000 crore—a two-fold jump in a year.
While the regulator doesn't share data on how much of this money is committed by domestic and foreign investors, fund managers BloombergQuint spoke to said there has been an increase in diversification by domestic high net worth individuals to alternate investment vehicles of late.
Domestic high net worth investors are increasingly seeking exposure to alternative investments, said Ritesh Chandra, managing partner at Avendus Future Leaders Fund, which has SEBI’s approval to raise up to Rs 500 crore. AIFs are increasingly becoming a preferred choice because of the flexibility that they provide on the type of investments, regulatory oversight and the benefit of foreign investments being treated as Indian capital, subject to meeting certain conditions, he said.
The commitments rose by Rs 39,452.58 crore in January-March quarter, the highest since the funds were allowed in 2012, data analysed by BloombergQuint shows. A bulk of these came in the last three quarters, coinciding with stress for non-bank lenders that impacted inflows into debt mutual funds after the surprise defaults of AAA-rated IL&FS group.
Alternative investment funds are privately pooled vehicles segregated into three categories: I, II, III. Only high net worth investors can invest since the minimum amount needed is Rs 1 crore, and such a fund can’t have more than 1,000 investors.
Investors in category-II funds committed money to debt, real estate, private equity, and distressed asset funds. As of May 7, more than half of the registered AIFs fell in category-II. And a large number of category-II funds, according to SEBI data, invest in real estate.
Category-II funds have invested Rs 68,085 crore in various projects and entities—that’s 62 percent of the total investments by all categories of alternative investment funds.
The increase in commitments comes as there has been a rush in investments by large private equity majors, including SoftBank, Alibaba, Naspers, Walmart, and Tencent, who view India as their largest open market, WaterBridge Ventures said in a report. That meant much of their money is flowing towards large deals in well-established companies, it said.
WaterBridge said while mega deals are “holding up the sky”, seed and pre-series A investments in early-stage startups have seen a sharp decline over the last three years. The number of venture capital deals of less than $6 million declined since 2015, while those over $6 million have been rising, it said. “The data is clear that there is indeed a boom in larger deals, while smaller deals are struggling.”
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