New Delhi: A report by Avendus indicates that the alternative investment landscape in India is experiencing a notable shift, largely fueled by the swift increase in high-net-worth individuals (HNIs).
Traditionally, investments in India have centered around illiquid physical assets such as real estate and gold. However, there is now a noticeable trend towards alternative assets, as investors seek higher returns amid challenges in the public equity markets.
The report states, "The growing wealth of HNIs and ultra-high-net-worth individuals (UHNWIs), projected to reach USD 2,000 billion by 2027, will enhance the demand for differentiated products like alternative investment funds (AIFs) that provide better opportunities for alpha generation."
It estimates that domestic alternative assets under management (AUM) are approximately USD 400 billion, indicating a significant potential for growth.
According to the report, "India's AIF market is currently estimated at around USD 400 billion. Middle-income families are expected to continue growing, driven by their increasing appetite and the solid underlying instruments available."
The supportive regulatory framework, high standards of corporate governance, and a growing population of wealthy investors create strong structural advantages.
Additionally, alternative investments are outperforming traditional asset management firms, underscoring the potential for enhanced profitability and valuation in this changing market environment.
As the demand for professionally managed wealth rises, investors are increasingly dedicating larger portions of their portfolios to alternative investments, leading to a fundamental shift in investment strategies.
This trend is further evidenced by regulatory reforms, the rising allocation of HNI wealth to AIFs, and the introduction of new asset classes such as private credit and real assets.
The report concludes, "With the number of HNIs and UHNIs expected to double in the next five years, wealth management AUM is anticipated to grow significantly."
The growing population of High Net-worth Individuals (HNWIs) and their accumulating wealth will further accelerate this transition, as these investors pursue unique products that improve returns and reduce risks.
"Although HNWIs currently allocate a relatively small portion of their managed wealth to Alternative Investment Funds (AIFs), approximately 7-8 percent, their involvement in alternative investments is anticipated to be a significant growth catalyst over the next decade, with AIFs' share projected to increase to 15% of HNWIs' managed wealth," the report stated.
In summary, the convergence of these factors positions India's alternative investment sector for a prosperous future, reflecting successful trends observed globally.
