IVCA Report Predicts Significant Growth for CAT III AIFs Amid Investor Demand

Category III Alternative Investment Funds (CAT III AIFs) in India are poised for substantial growth, with commitments expected to reach ₹2.5 lakh crore by 2028, according to the latest “Category III Alternative Investment Fund Report 2024” from the Indian Venture and Alternate Capital Association (IVCA). The report, launched in collaboration with strategy consulting firm Eleveight, was unveiled at the IVCA CAT III Summit in Mumbai.

The IVCA report highlights that CAT III AIFs have shown remarkable growth, boasting a compound annual growth rate (CAGR) of 8% and 52% over the past five and three years. As of December 2023, 257 registered CAT III AIFs have garnered commitments totaling ₹128,058 crore. This category has notably seen a significant increase in new fund launches in FY24, with 53 new funds compared to 37 in the previous year.

Vikaas Sachdeva, Managing Director of Sundaram Alternatives and Co-Chair of the CAT III Council at IVCA emphasized the benefits of CAT III AIFs, stating that they offer focused investments with potentially better risk-adjusted returns. He noted the meteoric rise of the CAT III segment and its promise for industry participants, particularly investors seeking to diversify and generate alpha.

Bhautik Ambani, CEO of AlphaGrep Investment Management and Co-Chair of the CAT III Council at IVCA, highlighted the significant potential of CAT III AIFs. He attributed their growth to rising wealth, diverse product offerings, and a supportive regulatory environment. Ambani also pointed out the strategic integration of AIFs by mutual funds, underscoring the evolving investment landscape in India.

Despite the promising outlook, the report identifies complex tax regulations as a major challenge for CAT III AIFs. The industry calls for clearer tax laws and tax equity to fully harness these funds’ potential.

GIFT City’s supportive regulatory framework and tax incentives are expected to further the growth of CAT III AIFs, especially those employing long-short strategies. The report stresses the need for structured education in the AIF space to inform stakeholders about investment mechanisms and risks.

The IVCA-Eleveight report provides a comprehensive overview of the CAT III AIF industry, covering market dynamics, investor preferences, and regulatory aspects. Over 150 industry stakeholders attended the summit, which explored the emerging potential of CAT III AIFs and their future impact on India’s investment landscape.