"Mid-market enterprises can harness the power of debt AIFs to propel their expansion and growth strategies."
How have Alternative Investment Funds (AIFs) shown resilience against recent global macroeconomic challenges compared to traditional asset classes?
AIFs have demonstrated notable resilience amid recent global macroeconomic challenges, outperforming traditional asset classes. This resilience can be attributed to several factors, especially in the Performing Credit space.
Diversified Investment & Asset Quality
AIFs often employ diverse and innovative investment strategies, which include a mix of asset classes like private equity, real estate, hedge funds, and Performing Credit. This diversification helps mitigate risks associated with any single asset class.
Vivriti Asset Management (VAM) is focused on high-grade Performing Credit space, investing in high-quality debt issuances that are expected to maintain their performance even during economic downturns. This ensures that the funds are exposed to lower default risks compared to other high-yield credit funds. Entities in the Performing Credit space are mid-market corporates that are predominantly profitable, with established business models, consistent cash flows, and well recognised by the banking system. However, such entities encounter limited access to term loans and debt capital markets, and we envision extensive potential in this segment, meeting the borrowing needs of mid-market corporates and providing investors a pathway to predictable returns through highly diversified funds.
Active Management and Expertise
AIFs benefit from active management strategies, enabling fund managers to swiftly respond to market movements, seize emerging opportunities, and implement effective risk management practices.
In the realm of debt AIFs, Performing Credit has emerged as a leading strategy. These strategies are designed to deliver high risk-adjusted returns while ensuring predictability and stability. Due to their closed-ended nature, debt AIFs do not encounter mark-to-market or liquidity risks, focusing solely on credit risk, which is why, while venturing into high-grade private credit investments, selecting a highly skilled fund manager is crucial. ?At VAM, we have an expert fund management team that has a knack for identifying opportunities and sourcing capabilities, meticulously conducting due diligence, maintaining diligent quarterly check-ins, monitoring, and managing credit risk. This proactive approach allows for taking the right calls in portfolio construction, thereby mitigating potential losses.
Our portfolios have benefited from stable credit performance and strategic investments made by our experienced fund management team to ensure zero defaults to date. This track record exemplifies our ability to consistently outperform.
We place a premium on conducting thorough due diligence and maintaining continuous oversight of our investments. This ensures that only companies with strong fundamentals and solid financial health are included in the portfolio, providing a shield against economic uncertainties.
Strategic Allocation
AIFs typically maintain a well-diversified portfolio across various sectors and geographies. At VAM, our funds are highly diversified keeping issuer and sector concentration cap. This strategic diversification mitigates the impact of sector-specific downturns, contributing to overall portfolio stability and resilience. By investing in wide range sectors, we ensure that our portfolios are better positioned to withstand economic fluctuations, ultimately providing more consistent returns for our investors.
Structural and Regulatory flexibility
AIFs enjoy a regulatory framework that allows for greater flexibility in investment strategies compared to traditional mutual funds. This flexibility enables fund managers to deploy innovative investment techniques and respond swiftly to market fluctuations.
How can mid-market enterprises leverage debt AIFs to fuel their expansion and growth plans?
Mid-market enterprises can harness the power of debt AIFs to propel their expansion and growth strategies. By tapping into Performing Credit funds, these enterprises gain access to flexible financing solutions that cater specifically to their needs.
At VAM, Performing Credit funds provide mid-market enterprises with several key advantages:
What steps do you take to align investors' financial goals and investment objectives with VAM's offering?
At VAM, aligning investors' financial goals and investment objectives with our offerings is a paramount priority. Here's how I ensure this alignment:
Understanding Investor’s investment philosophy and assessment
We initiate the process by engaging with investors and trying to have a deeper understanding of their risk tolerance, investment preference, investment horizon, and liquidity requirements. This helps us gain deep insights into their unique requirements and objectives.
Why VAM
Before exploring our product offerings, it is crucial for investors to understand our investment thesis, expertise, and team capabilities and know why we believe in what we do, the principles that drive us, and how we would add value. VAM has unlocked the secret to excel in the Performing Credit space by leveraging real-time data and proprietary models to continuously monitor credit risk. Our rigorous, hands-on diligence process addresses the challenges of the unlisted market's obscurity.
It is a segment that is often overlooked but is on the brink of rapid expansion. We've pioneered a series of highly distinctive Performing Credit funds tailored to fulfil investors' cravings for superior risk-adjusted returns that is beyond the scope of traditional debt mutual funds, all the while maintaining meticulous risk management protocols. Granularity embodies a fundamental aspect of our underwriting process, evident across all products in our portfolio to date. As a result, our funds mirror the growth and collaboration achieved within our franchise, showcasing our ability to raise, deploy, manage, and strategize effectively.
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Our product offering
We structure products with investor preferences and feedback in mind. That is why we offer multiple funds with different risk-return profiles compared to many other fund houses. This allows investors to optimize asset allocation.
Transparent communication
We emphasize transparency and trust in investor relationships, and we uphold these values by providing clear explanations of our investment offerings, strategies, associated risks, and potential returns. This fosters trust and ensures investors have a comprehensive understanding of how our offerings align with their objectives.
Consistent high-level engagement
While prioritising consistent high-level engagement, we ensure ongoing communication, collaboration, and alignment throughout the investment journey. We provide investors with timely updates on their portfolio performance, market trends and deployment as we build assets in the fund. This proactive communication helps investors stay informed and confident in their investment decisions.
Investor feedback
We actively solicit feedback from investors and identify areas for improvement while launching new funds. This continuous feedback loop enables us to refine our services to better align with investor expectations while staying true to our investment philosophy.
With the increased interest from both global and domestic investors in the AIF space, what do you believe are the key factors that will continue to drive the growth of AIFs in India in the coming years?
The growth of AIFs in India is being driven by several key factors, which are likely to sustain and expand this trend in the coming years. Here are the critical elements contributing to this growth:
Regulatory Support and reforms
The Indian government and regulatory bodies, such as SEBI, have been progressively introducing favourable regulations and reforms to enhance the attractiveness and operational ease of AIFs. These reforms include clearer guidelines, and measures to improve transparency and governance, making the AIF space more appealing to investors.
Diversification and yield enhancement
AIFs, particularly in the Performing Credit space, offer investors the opportunity to diversify their portfolios and achieve higher yields compared to traditional fixed-income instruments. Both global and domestic investors are increasingly seeking such avenues for better returns.
Increasing investor sophistication
There is a rising sophistication among Indian investors, including high-net-worth individuals (HNIs)/ family offices and institutional investors, who are aware of the benefits of alternative investments. Growing knowledge base is driving more capital from HNIs and family offices towards AIFs as they seek to balance risk and return through diversified investment strategies.
Rise of impact investing
Impact investing is gaining momentum as investors seek financial returns alongside social and environmental benefits. At VAM, we focus on sectors such as financial inclusion and sustainable development and are well-positioned to attract capital from investors interested in making a positive social impact while achieving financial gains.
Emerging technologies and innovations
The integration of advanced technologies and innovative financial products within the AIF ecosystem is boosting operational efficiencies, improving risk management and enhancing investor experiences. This technological advantage makes AIFs more competitive and attractive to investors.
Global investment trends
The global investment community is recognizing the potential of emerging markets like India. The growing supply of debt issuances from mid-corporates, driven by economic expansion, corporate sector growth, and greater capital market penetration, is attracting attention. As international investors look to diversify their portfolios geographically, the Indian AIF space becomes an attractive destination due to its promising growth prospects and regulatory enhancements.
Disclaimer:
The views provided here are personal and do not necessarily reflect the views of Vivriti. This article is intended for general information only and does not constitute any legal or other advice or suggestion. This article does not constitute an offer or an invitation to make an offer for any investment.