Category 3 AIFs see record capital inflows at ₹8,521 cr
CATEGORY 3 ALTERNATIVE INVESTMENT FUNDS ARE HEDGE FUNDS THAT INVEST IN PUBLIC MARKET
MUMBAI: In the first nine months of 2017, Category 3 Alternative Investment Funds (AIFs) have raised ₹8,521 crore (around $1.3 billion), which is more than double of what these funds managed to raise in the whole of 2016, according to data from markets regulator Securities and Exchange Board of India (Sebi).
In 2016, Category 3 Alternative Investment Funds managed to raise ₹3,316 crore, data shows.
The AIF regulations were notified by Sebi in 2012 and divides privately managed funds into three categories. Categories 1 and 2 catering to venture capital, private equity and debt and infrastructure funds.
Several firms have launched public markets focused AIFs this year, including Avendus which had raised over ₹2,000 crore for its long short equity fund and Reliance AIF Asset Management Co Ltd, which is raising a ₹1,000crore equity fund.
According to industry experts, Category 3 alternative investment funds are attracting interest because of the bull run in the Indian stock markets in the past three years, availability of talent, good track records in managing exotic trading strategies and the increased interest of wealthy individuals.
“The AIF Category 3 has been coming into vogue in the recent times for multiple reasons. One being that mutual funds were getting such large volumes of capital inflows, with some of them becoming ₹20,000 crore or ₹40,000 crore in size, that the ability to customise the offering became very limited. So, taking care of specific themes, specific ideas was becoming difficult in the mutual fund space,” said George Mitra, CEO of Avendus Wealth Management. Several firms launched such funds to take advantages of niche concepts or in-house trends.
In the last few years, many fund managers, who earlier worked in the US with hedge funds or foreign portfolio investors investing into India, have returned to India, said Ashwyn Misra, partner at law firm Trilegal. “These fund managers came back with a lot of technical capabilities, they could develop complex trading strategies. The market was also climbing, so there was clearly an opportunity and these managers had the track record and credentials to go to high net worth individuals (HNIs) to raise funds.”
These fund managers have also introduced algorithmic trading and automated strategies to Category 3 AIFs, he said.
“There is considerable interest in putting money into these strategies, because they offer you less management fees. So the outgo is less,” added Misra.