By Nesil Staney
Pre-IPO investments via alternative investment funds (AIFs) are gaining traction, as investors seek early access to future market leaders in India’s startup ecosystem. Vikaas M Sachdeva, Managing Director, Sundaram Alternate Assets, tells Nesil Staney that AIFs have become attractive among family offices because of their flexibility. Excerpts:
How do AIFs offer differentiated access to India’s private market as against traditional mutual funds or PMS?
Alternative investment funds (AIFs) provide access to India’s private markets unlike the way conventional mutual funds or portfolio management services (PMS) do. Mutual funds and PMS invest predominantly in listed equities and high-quality debt; AIFS can deploy capital across unlisted equities, private credit, infrastructure, distressed assets and venture capital.
This flexibility enables AIFs to spot value in illiquid, traditionally under-penetrated pockets — from early-stage startups to mid-market businesses — where traditional vehicles are hindered by regulation or liquidity considerations.
What is the outlook for IPO or strategic exits from private equity AIF investments.
Pre-IPO investments via AIFs are gaining traction as investors seek early access to future market leaders in India’s effervescent startup ecosystem. Rising late-stage valuations are making pre-IPO entries attractive, while growing interest from institutions like pension and sovereign wealth funds is boosting flows. Sebi’s supportive regulatory stance has further enhanced investor confidence, positioning pre-IPO AIFs as a key route for tapping into upcoming public market opportunities.
Are family offices and HNIs shifting more allocation to PE via AIFs? What’s driving the change?
AIFs offer exposure to assets with uncorrelated market exposure, making them an appealing choice, especially when uncertainty is high. AIFs have become increasingly popular among family offices, thanks to their flexibility in providing customised investment strategies across sectors, such as private equity, real estate and hedge funds.
According to our recent report, prominent family offices are considering increasing asset allocation to AIFs by up to 5% with a particular focus on venture capital and venture debt.
Will upcoming RBI/SEBI changes unlock institutional flows into PE AIFs?
The Reserve Bank of India’s draft norms signal a measured reopening of institutional capital flows into PE AIFs. The discussion paper — capping exposure at 10% per regulated entity (RE) and 15% collectively — strikes a balance between prudence and participation. Notably, investments of up to 5% remain unrestricted, but exposures beyond that — especially where downstream borrowers overlap with existing RE clients — must be fully provisioned. This aims to curb the misuse of AIFs for evergreening while still enabling long-term patient capital.
What sectors or borrower types are seeing increasing demand for structured private credit.
At present, real estate, power, utilities, pharma and healthcare make up for a large portion of borrowers from private credit funds. With India’s ongoing emphasis on infrastructure development, the infrastructure sector is expected to remain one of the most in-demand areas for private credit.
How are AIFs helping mid-sized Indian companies access non-bank capital?
Mid-sized enterprises remain underserved by traditional lenders. AIFs have emerged with performing credit strategies. These AIFs are focused on profitable companies with Rs 300–4,000 crore of revenues, providing medium-to-long-term debt capital beyond traditional banking horizons. These investments generally provide gross returns of 8–16%, bridging the white space between low-risk debt funds and high-risk distressed strategies. By pooling capital from HNIs, family offices, institutions and international investors, AIFs diversify sources of funding and bring mid-market corporates to the capital market for the first time, typically in terms of maiden bond issuances.
How are investors evaluating risk-adjusted returns in private credit vs traditional fixed income?
Private credit offers an excellent way to diversify investor portfolios by providing access to emerging sectors. The robust risk assessment frameworks and well-structured approaches used by AIFs help mitigate much of this risk, giving investors greater confidence to explore these fund categories.
Benefits of diversification and the potential for attractive returns make private credit funds appealing to the investor.