India Alternatives Eye $2 Trillion Prize on HNI Wealth Surge

Alternative investment managers in India have set their sights on growing industry assets from $400 billion to $2 trillion, according to a report titled, rather ambitiously, “The alpha investment for maximizing alpha.”

The analysis by investment bank Avendus Capital hinges heavily on India’s High Net Worth Individual (HNI) population increasing their allocation to alternatives from 7-8% to 15-16% of managed wealth. This conveniently aligns with the growth needed to justify premium valuations for alternative managers.

The report makes a case for why alternative players deserve to trade at 28x earnings versus 13x for traditional asset managers. The justification rests largely on fee structures that combine management fees on committed capital with performance fees, resulting in higher profitability than conventional asset management.

Performance data presented shows alternatives beating public market equivalents by over 10% in pooled IRR terms. However, the methodology for these comparisons and treatment of leverage in return calculations remains opaque.

The regulatory framework offers four different routes for private investment in Indian companies – through FDI, AIFs, FVCIs, and FPIs – creating a complex web of options that has evolved since SEBI’s 2012 AIF regulations.

The report also draws parallel to China’s alternative investment market, where the AUM grew to $3-4 trillion.

The growth thesis relies heavily on India following global patterns where increased wealth management penetration correlates with higher allocations to alternatives. The report projects India’s HNI population growing from 875,000 to approximately 2,500 by FY34, with their financial assets expanding from $1,745 billion to $5,430 billion.