In India, where gold and real estate have for long been popular investment options, there has been a strong rise in people investing in equity and mutual funds in the last few years. But now with a growing number of high net worth individuals (HNIs) and a rising number of people with increasing risk appetite and demand for higher returns, alternative assets are also gaining traction.
Investment banking firm Avendus Capital projects alternative assets market in India will grow five times to touch $2 trillion by 2034. Assets under management (AUM) in the alternative assets market are currently estimated to be around $400 billion. Need for portfolio diversification and supportive regulatory developments will also be among the drivers for this growth.
According to Avendus, alternative investments outperforming traditional investments options, offering higher alpha, are attracting increased interest from India's HNIs and ultra HNIs.
"We are seeing a fundamental restructuring in how capital is deployed. Driving this shift is the synergy between regulatory enhancements, technological advancements and a growing base of sophisticated investors," Anshul Agarwal, managing director and co-head, consumer, FIG and business services investment banking, Avendus Capital, said.
This rising interest in alternative assets aligns with global trend where alternatives have seen their share double to 20 per cent of total global AUM from 10 per cent between 2005 and 2020.
"As the market evolves, we observe a convergence of global trends and local market dynamics. This uniquely positions India not only for significant expansion in the alternatives market but also as a potential leader in innovation among emerging economies. The rapid growth we are witnessing could reshape India's financial landscape, offering sophisticated investment options that were previously limited to more developed markets," said Agarwal.
Alternative assets offer diversification beyond the traditional basket of stocks, bonds, and cash. These assets are generally less liquid and carry a higher risk-reward profile compared to traditional investments. Consequently, they are primarily targeted towards sophisticated investors like pension funds, insurance companies, and HNIs.
Key asset classes within alternatives encompass real assets, private equity investing in unlisted companies with high growth potential, private credit, hedge funds and natural resources among others.
Avendus notes share of global financial wealth held by HNIs has grown from 41 per cent in 2013 to 48 per cent in 2023 and is expected to reach 55 per cent in the near to medium term. The growth in HNI wealth is particularly "robust" in emerging markets such as Asia and the Middle East, which have seen a long term growth of 8 per cent, outpacing North America and Europe, at 5 per cent and 4 per cent, respectively, it said.
An increased proliferation of professional management has led to HNIs allocating a higher portion of their wealth into alternative assets, it added.
In India, with the number of HNIs and UHNIs expected to double over the next five years, wealth management AUM is expected to grow exponentially. Rising HNI and UHNI wealth, which is expected to become $2 trillion by 2027 will drive a higher appetite for differentiated products like alternative investment funds (AIFs), Avendus pointed out.
"We are seeing multiple alternative investment firms intensifying their focus on India gearing up for the next wave of growth, where diversification will be critical. This may lead to consolidation and listing in the near future," said Snigdha Khemka, director, consumer, FIG and business services investment banking, Avendus Capital.
Alternative assets will act as a key catalyst on India’s path to a $10 trillion GDP, she opined.
