New Delhi [India], January 2 : The landscape of alternative investments in India is undergoing a significant transformation driven by the rapid rise of high-net-worth individuals (HNIs), says a report by Avendus.
The report highlighted that investments in the country traditionally focused on illiquid, physical assets like real estate and gold, are now gravitating towards alternative assets, seeking higher returns as public equity markets struggle to generate substantial alpha.
It said, "Rising HNI & UHNI wealth which is expected to become USD 2,000 Bn by 2027 will drive a higher appetite for differentiated products like AIFs which offer better alpha generation opportunity".
The report estimates domestic alternatives assets under management (AUM) of around USD 400 billion and added that there exists a substantial opportunity for growth.
The report said, "India's AIF market is estimated to be c. USD 400 Bn currently. Middle income families will continue to witness growth given the rising appetite from middle income & solid underlying instruments"
The favourable regulatory environment, high levels of corporate governance, and a burgeoning population of affluent investors provide robust structural tailwinds.
Moreover, alternatives are outperforming traditional asset management companies, further highlighting the potential for improved profitability and valuation premium in this evolving market landscape.
As the demand for professionally managed wealth increases, investors are progressively allocating significant portions of their portfolios to alternatives, resulting in a paradigm shift in investment strategies.
Factors such as regulatory reforms, the increasing allocation of HNI wealth to alternative investment funds (AIFs), and the emergence of new asset classes like private credit and real assets reflect this trend.
"With the number of HNIs and UHNIs expected to become 2x over the next 5 years, wealth management AUM is expected to grow exponentially" the report added.
The increasing number of HNIs and their wealth will further amplify this shift, as these investors seek differentiated products that enhance returns and mitigate risks.
"While HNIs have a low share of AIFs as part of their managed wealth (c.7-8 per cent), over the next decade, participation of HNIs in alternatives is a key growth driver, with AIFs' share expected to double to 15% of HNIs' managed wealth" said the report
Overall, the confluence of these trends positions India's alternatives sector for a thriving future, drawing parallels with successful global dynamics.
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