This is the first article in the three-part 'The Alternative Bet' series sponsored by Neo Asset Management
When you think about investing what comes to mind? The stock market, SIPs, mutual funds, gold. But these are traditional tools. Alternative investments go beyond that.
Globally, alternatives have always been a large asset class, growing at more than 10% CAGR for the last decade. Alongside private equity and venture capital, other alternative investments such as real estate, infrastructure and debt have also seen growth in India.
According to Neo Asset Management, the category's assets under management have surged eightfold from Rs 0.8 lakh crore in 2017 to Rs 6.4 lakh crore in 2022.
The different types of alternative assets include:
1. Private Credit
2. Private Equity
3. Real Assets
4. Hedge Funds
How to classify the buckets within asset management?
1. Growth Assets: These offer higher investment returns over a long period of time but are marred by volatility.
2. Income Assets: These deliver regular cashflows over a short or long duration. The returns are predictable and consistent with low volatility.
According to Hemant Daga, cofounder and chief executive of Neo Asset Management, "Income assets give regular cashflows of 6-8% and returns of 12-18%." An investor's portfolio should have a mix of growth and income assets, he said.
Risks And Benefits
Alternative investments in a portfolio can reduce risk and enhance returns by lowering the correlation with traditional asset classes. AIFs can also offer strategies designed to manage risk and preserve capital.
This category often has the potential to generate higher returns. However, higher returns come with higher risks. So, investors should carefully assess the associated risks.
"Risk comes in investing when there is lack of transparency for the investor," Daga said. "A customer should judge an asset manager from years of experience in the field."
While global asset managers own 45% of operating assets, hardly 3% of these assets are owned by asset managers in India.
Daga is optimistic. According to Neo Asset Management, private credit and real assets will be significant growth drivers for the next decade. Daga expects Indian money to change the world of alternative investments in the next 10-15 years.
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