Healthy outlook for India’s alternative investment industry

Investors in India are putting more and more cash into alternative investments, according to a new report from Preqin.

There is now some US$43bn invested across a range of alternative asset classes in the country. These include private equity, hedge funds, private debt, real estate, venture capital and infrastructure. Although the alternative investment industry is showing signs of strong growth in India, it is still burgeoning when compared with other far more mature markets, such as Hong Kong and China, with US$108bn and US$265bn of assets invested in alternatives respectively.

Private equity and venture capital are the most popular of these asset classes, with 63 per cent of investors opting for this route. For those wanting to move towards alternative investments, there are now 46 hedge fund managers in India and a further 221 private capital fund managers through whom they can invest.

The Preqin report points out that it is not just private investors who are moving their money out of stocks and into alternatives, some 60 percent of institutional investors now have money in alternative assets as well.

The Chief Executive at Preqin, Mark O’Hare, stated: “This may be indicative of how many investors in India recognise the benefits of exposure to alternatives, which may include low correlation to traditional asset classes, such as equities and fixed income, and the potential for high risk- adjusted returns.”

He explained that the level of development within India’s economy is the reason behind the trend. India now has a growing GDP per capita of USD6,600, while China at USD15,400 and advanced European and North American economies at USD40,000-60,000.

“This in turn highlights the potential growth for India’s alternative assets industry. With GDP growing at 7 percent per annum, this is likely to deliver a compounded growth in Indian alternative assets over the long term, as alternative assets participation rates in the economy converge on those of more developed economies,” stated O’Hare.

The report predicts that, although the balance of the alternative investments is firmly set towards private equity at the moment, this should shift as investors diversify further. “If patterns from other markets are replicated in India, the interests of these investors will broaden to include other strategies as the market evolves,” explained O’Hare.

Another report on the topic, by urged Indian investors not to overlook alternatives as a medium-term investment strategy, stating: “considering 65 percent of Indian population is under 35 years, consumption is going to be the major driver of the economy in the next two decades. Which means almost all consumption based companies and sectors would be seeing phenomenal growth.”

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