Surging AIFs: Unlocking India's Private Market Potential

According to the Crisil-Oister report, Alternative Investment Funds (AIFs) targeting unlisted securities have earned a 21.5% IRR from 2013 to 2024, outperforming the BSE Sensex TRI. Early-stage AIFs saw a 26.9% IRR, while large-ticket deals drove market growth, reflecting India's evolving investment landscape.

Alternative Investment Funds (AIFs) concentrating on unlisted securities have demonstrated remarkable performance, achieving a pooled internal rate of return (IRR) of 21.5% between fiscal years 2013 and 2024. This is according to the Crisil-Oister report, 'No ifs about AIFs 2.0'. Over the past five years, these funds have surpassed the BSE Sensex Total Return Index (TRI), indicating the strength of India's private markets, the report reveals.

Early-stage AIFs have excelled, producing a pooled IRR of 26.9% during the same period—4.29% higher than the BSE 250 Smallcap TRI. Growth and late-stage funds also performed well, posting a pooled IRR of 23.6%, and exceeded the BSE 200 TRI by 5.97%. Notably, funds from fiscal 2014 boasted a distribution-to-paid-in (DPI) capital ratio of 1.56, indicating investors received a 56% return over their initial investment as of March 2024, highlighting the potential of private equity investments in India.

Sandeep Sinha, Co-CEO of Oister, remarked on the trend, "In fiscal 2024, private markets showed their strength at outperforming expectations and driving long-term growth and sectoral innovation, establishing a benchmark for resilience and growth." The report notes that late-stage and significant deals compose a substantial part of private market equity transactions, showcasing the growing maturity of India's private market ecosystem. In fiscal 2024, late-stage deals accounted for 39% of the entire equity deal value, up from 18% in 2014, indicating a market aimed at scalability and predictability.

In contrast, big-ticket deals, those over Rs 500 million, made up 90% of the total value, despite representing only 28% of transaction volume, emphasizing their potential for substantial returns, as per the report. AIFs were pivotal in spearheading private market deals, with total commitments across Categories I, II, and III reaching Rs 11.35 trillion by March 31, 2024—a remarkable ~87-fold increase since March 31, 2014.

Category II AIFs raised Rs 9.13 trillion by March 2024, directing private capital into high-impact sectors. In fiscal 2024, the private markets displayed increasing liquidity and inclusivity. An unprecedented 210 initial public offerings surpassed the combined total of the preceding two fiscal years, offering investors exit opportunities.

Illustrating innovation beyond metropolitan areas, non-Tier I cities contributed 8% of deal volume in fiscal 2024, achieving a compound annual growth rate of 24% in value terms from 2014 to 2024. The financial services and technology sectors accounted for 17% of deal value, driven by India's leadership in digital finance. Meanwhile, climate and related technology sectors grew their share from 1% in 2014 to 7% in 2024, underscoring the global shift towards sustainability, as noted in the report.

(With inputs from agencies.)