Notwithstanding top performance of Indian headline indices, AIF benchmarks have outperformed the S&P BSE Sensex, generating an internal rate of return (IRR) alpha of 13.5% as of March 2023, a CRISIL report reveals. This outperformance is not limited to a handful of funds as over 75% of them in the benchmark have generated a positive alpha, the report said.
This report includes performance comparison of aggregate alternative investment funds or AIF benchmarks including Category I and II equity funds that invest purely in unlisted securities belonging to vintage years fiscal 2013 to 2022, with corresponding public market equivalent (PME) values using the S&P BSE Sensex TRI.
While the IRR for the aggregated AIF benchmark stands at 25.76% as of March 2023, the ratio of total distributions to paid-in capital — which denotes realised gains — remains low.
The ability of fund managers to make timely exits from their portfolio companies at favourable valuations will determine the investor experience with these products.
“The AIF industry is still evolving so, apart from performance, it is equally important to focus on the quality of investment and the risk control processes, standardisation of valuation practices and the overall governance architecture when leveraging the abundant opportunities available for investment,” Says Jiju Vidyadharan, Senior Director, CRISIL Market Intelligence & Analytics said.
Sharp focus on improving transparency will be one of the important enablers of the industry’s growth, he added, saying that India’s strong economic situation, burgeoning entrepreneurship, expanding consumer base, rapid digital adoption, supportive regulatory environment and government initiatives will provide the foundation for growth.
AIFs are expected to remain one of the fastest-growing managed product categories over the next few years as more and more high-net-worth individuals (HNIs) and ultra-HNIs seek differentiated products that give them an option to generate better positive alpha on their investments, the report claimed.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
