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Alternative investment funds emerging as preferred investment choices for family offices

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With growing investor awareness and UHNIs seeking flexibility and transparency across varied product offerings, well-managed AIFs offering high liquidity and low volatility are emerging as preferred investment choices for family offices.

It is widely estimated that the alternative investment segment in India will gain increasing traction with family offices. They are investing largely in alternative unlisted assets to gain better investment control, diversify their portfolio, earn attractive risk-adjusted returns with limited correlation to public markets and hedge against inflation. Private wealth managers are largely collaborating with family offices to structure private investments.

India is becoming one of the fastest growing economies in the world and has the world’s third largest startup ecosystems. With rapid rise across industries and fast-paced digitization, a high-performing market and low interest rates, India has become a sought-after destination for global investors seeking attractive returns on their investments. It has also given rise to a new class of first generation Ultra High Networth Individuals (UHNIs) who are leveraging the family office way to hold, manage and increase their wealth.

A report brought out by technology platform for startups trica in partnership with law firm AZB Partners and consulting firm EY stated that over 40% of family offices and UHNIs have doubled their allocation to private markets in the past five years. Investments in the private market space remained a preferred investment choice with startup allocations and VC funds topping the table. Investments were also allocated across other alternatives like real estate, infrastructure and art.

With growing investor awareness and UHNIs seeking flexibility and transparency across varied product offerings, well-managed AIFs offering high liquidity and low volatility are emerging as preferred investment choices for family offices.

Commenting on the same, Mahesh Singhi, Founder & MD, Singhi Advisors, said, “With exponential growth witnessed across diverse industrial sectors, fast-paced digitization, a high-performing market and low interest rates, India has cemented a strong position as a sought-after destination for global investors seeking attractive returns on their investments. The India growth story has spurred a new class of first generation Ultra High Networth Individuals (UHNIs) to leverage the family office way to hold, manage and increase their wealth.”

“Family offices are exploring the investment potential of alternative unlisted assets to gain better investment control, diversify their portfolio, earn attractive risk-adjusted returns with limited correlation to public markets and hedge against inflation. With growing investor awareness and UHNIs seeking flexibility and transparency across varied product offerings, well-managed AIFs offering high liquidity and low volatility are emerging as preferred investment choices for family offices,” Singhi added.

Nirmal Gangwal, Managing Partner, Brescon & Allied Partners LLP, said, “Equity markets have witnessed a knee-jerk reaction and are clouded with uncertainty, with bond yields inching upwards. Unsurprisingly, HNI investors and their family offices are increasingly looking to diversify their investments into avenues that provide better returns on their otherwise low-yielding fixed income portfolios. Alternate Investment Funds (AIFs) can add a significant “kicker” or “delta” to portfolio returns through smart asset allocation into credit AIFs by astute family offices.”

Credit AIFs provide ease of investment through the pooling of capital, which can defer the high cost involved in the set-up, under-writing, diligence, legal documentation and fund administration. Besides being insulated from the vagaries of the equity markets, investments by Credit AIFs are typically secured with 1.25-3.5x asset cover besides other equity collateral. The AIF route ensures the sponsors “skin in the game” and alignment of interests of sponsors, investors and fund managers.

Convenient structuring of the investment instruments can also allow for liquidity preference through escrow of cash flows and non-core asset monetization. Since AIFs strategically invest into a portfolio of companies through timely intervention, the benefit of diversification, risk mitigation, and opportunistic return maximization accrues to the pool.

“With a team of senior bankers armed with the requisite skill sets required for origination, an advisory board comprising of domain experts and an experienced investment committee equipped to underwrite manageable risk while ensuring excellent returns, AIFs can be an excellent vehicle for generating consistent relatively higher returns with a fair degree of convenience and safety,” added Gangwal.



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