Alternative

Asset Management
AKHIL CHATURVEDI
A Decadal Growth
Chief Business Officer, Motilal Oswal AMC
Opportunity

The next decade holds immense promise for India's economic growth, with projections of becoming the third-largest
global economy by 2030. As the nation takes bold strides forward, it paves the way for significant opportunities in the
alternative asset management industry. This evolution is primarily driven by the Financialisation of Savings, as Indian
households increasingly turn to equities and mutual funds for wealth generation.
Golden Decade Ahead - India projected to be the third largest economy by 2030
Decade wise Top 10 Economies (USD terms)

Rank 1980 1990 2000 2010 2020 2030E USD tn

1 United States United States United States United States United States China 30.4

2 Japan Japan Japan China China United States 28.3

3 Germany Germany Germany Japan Japan India 6.1

4 France France United Kingdom Germany Germany Japan 6.1

5 United Kingdom United Kingdom France France United Kingdom Germany 5.0

6 Italy Italy China United Kingdom India United Kingdom 4.4

7 Canada Canada Italy Brazil France France 3.6

8 Mexico Spain Canada Italy Italy Brazil 2.7

9 China China Mexico India Canada Canada 2.6

10 Spain Brazil Brazil Russia Korea Russia 2.5

Source: Bloomberg, IMF, 2030 estimates from CEBR (The Centre for Economics and Business Research)

The rising trend in equity investments and mutual fund assets signifies a fundamental shift in Indian households' invest-
ment behaviour. However, the demand for more specialised and risk-tolerant investment options is growing among
Ultra-High Net Worth Individuals (UHNIs) and High Net Worth Individuals (HNIs). These segments require differentiated
product offerings in Private Equity (PE), Alternative Investment Funds (AIFs), and Portfolio Management Services (PMS).

Rising HNI Population and Financial Wealth in India – Untapped Potential for Alternates
The demographic landscape of wealth is undergoing a transformation, with a surge in the number of UHNIs and HNIs.
They are expected to register a CAGR of 7% and 12% respectively.
67 PMS & AIF SPECIAL EDITION - NOV 2023
 over 2021-26 It was over 2021-26
necessary
 to transition from a product-oriented strategy and adopt a
solution-oriented approach due to the increasing demand for personalized
Indian UHNI population (US$30m+) Indian
services. Only a scalable wealth HNI population
management player (US$1m+)
with "Full Platform"
19,006 capabilities would be able to provide this holistic solution. This led to a shift in
14,07,287
market from banks to specialized wealth & asset management firms.
 360ONE is expected to launch a product for the mass affluent segment to cater
13,637
12,287 to clients with networth in the range of INR50-250m. It will use a phygital
7,65,929 7,96,961
model, relying heavily on technology. Distinctive features for this mid-market
7,401 proposition outlined
4,86,519by 360ONE are: 1. A unique assortment of curated and
approved products available on the platform and 2. to expand the client base of
RMs to 100 from 50 clients.
 Nuvama Wealth is one of the wealth management players in the affluent and
HNI client segment. It services 1m+ clients (managed by ~900 RMs) with ~INR
2016 2020 2021 2026 2016 2020 2021 2026
550b client assets under management (Mar'23).
 Even for ICICI Securities (ISEC), one of the five focus areas for growth include
Source: The Knight Frank Wealth 2022, MOFSL Source: The Knight Frank Wealth 2022, MOFSL
wealth management business, which is primarily the mass affluent segment.
Here, customers are acquired through 1) open market sourcing, and 2) utilizing
Their financial wealth is expected to grow significantly, fueling the need for professional asset management services
data analytics to tap into the untapped potential within the existing pool of ICICI
in the alternative asset space. We expect UHNIs and HNIsDirect to witness 13-14% growth in their financial wealth through
Product-side evolution fostering efficient risk-reward
 We
customers.
2022-27. Along with this, the Affluent class is also expected to see a robust
expect the mass growth
affluent segmentof to
12-13%. Theirover
grow at ~15% financial
the mediumwealth
term is
equation with technology and platform services being the key differentiator in this fierce
expected to grow significantly, fueling the need for professional asset management services in the alternative asset
competitive landscape.
space. Financial wealth is expected
 to
Ingrow at a CAGR
the past, wealthofmanagement
about 12%, from
firms$2.6 trillion focused
primarily to $4.5 trillion.
on selling investment
Exhibit 1: Total addressable asset pool
products and generating commission-based revenues from transactions.
We have already seen a rapid rise in AUM (asset
 However, with the rise of sophisticated clients and increased competition, the
under management) for PMS & firms AIF. have
Notably,
shifted to an advisory-based approach that emphasizes holistic, long-
Discretionary PMS has witnessed term a remarkable
relationships with clients.
CAGR of about 30% over the last10 years, As a result,
reachingthe firms are becoming more comprehensive, offering a wide range
of services rise
Rs 2.7 trillion. AIFs have seen an exponential that go beyond traditional investment products.
with a CAGR of about 80%, amassing  They provide advice on tax planning, estate planning, retirement planning,
commitments
of Rs 8.4 trillion. India's wealth under philanthropy,
professionaland more, with a stringent focus on building stronger
management remains comparativelyrelationships low, offeringwith clients, becoming more integrated into their lives, and
a vast untapped market for asset offering customized solutions that meet their unique needs.
managers.
Compared to China, which rose from Wealth
36% inmanagers
2009 have found it necessary to undertake product-side evolution,
making
to 68% in 2020, India still is at 14% v/s 9% in 2009. a decisive shift from mere debt and
Source: equity
McKinsey Globalsolutions to alternatives
Wealth Pools analysis, and
360ONE WAM, MOFSL

Changing demographics, such as the otherrise sophisticated

of youngerproducts to enable
millionaires and the optimal diversification
proliferation and foster
of wealth acrossancities,
underscore the evolving landscape of efficient
wealthrisk-reward
creation andequation.
investment preferences. As millennials and Gen Z investors
 Wealth management firms have,assets
therefore, evolved to offerto a wider
cater range of risk
The
seekchanging
unique anddemographics
diversified investment of wealth
opportunities, alternative are well-positioned
products, including hedge funds, private equity, real estate, and commodities.
to their
appetite and financial goals.
 These
25 September 2023 products often have higher risk profiles and require specialized expertise 2

Youngest Age in IIFL Wealth Hurun to manage,

Rich List 2022but they also have the potential Number of toIndian
deliver higher
cities in the returns
ranking ofand help
37 savvy clientele achieve their financial goals. individuals with a net worth of INR 1,000 crore+
 New-age wealth management firms are also taking a more holistic 82 approach by

integrating banking and lending services and emerging as a comprehensive, one-

stop 19 solution for clients, thereby increasing the value of their relationship.

Exhibit 4: India to become the 4th largest private wealth market globally by 2028
AUM CAGR AUM/Premium
AUM/Premium
10
Asset Class
last 10 years
to GDP (India) to GDP (US)
2012 Mutual2022
Funds 2012 20%
16% 2022116%

Source: IIFL, MOFSL AIF 70%

1% 13%
Insurance 13%
4% 11%
In light of these trends and opportunities, the alternative asset management industry in India is poised MOFSL
Source: Nuvama Wealth, for robust
growth in this decade. Motilal Oswal Asset Management, one of the pioneers and leaders in this space, is well-prepared
• to
Millennials and
capitalise on thisGenZ
growthhave a unique
trajectory. With perspective
a 20-year trackon wealth
record with
in PMS, a greaterAUM,
a substantial appetite forofrisk.
and one the market
25leaders
September 2023
in Category 3
3 AIFs, Motilal Oswal AMC is poised to seize the opportunities presented by this evolving
investment landscape. Its rich experience, track record, and commitment to creating wealth for investors make it a
prominent player in India's alternative asset management industry.

68 PMS & AIF SPECIAL EDITION - NOV 2023

Highlighting some of the advantages of PMS and Category
3 Alternative Investment Funds (AIF CAT III)
PMS

• Opportunity to differentiate: PMS caters to HNIs operates with pool accounting, similar to mutual
seeking differentiation and an upgrade from traditional funds, but with fewer restrictions. There are no
mutual fund options. It offers a more tailored and sector limits, and there's no requirement to
customised investment experience. rebalance stock exposures. Additionally, there are
no strict category classifications that dictate
• Sense of ownership and independent portfolio: market cap allocations, providing greater
PMS provides investors with a unique sense of flexibility.
ownership. Their holdings are isolated in individual
demat accounts, which means that the purchase or • Variety of fund structures: AIFs can be either
redemption activities of other investors do not impact close-ended or open-ended. Open-ended AIFs function
their model portfolios. perpetually, similar to most mutual funds. In contrast,
closed-ended AIFs have a predetermined "maturity"
• True averaging of stocks through top-ups: In PMS, date. The drawdown structure allows the fund manager
stocks are acquired using top-up amounts, which are to decide when to call for additional funds from
proportionate to the current holdings. This approach investors, providing more control over the fund's capital
ensures a more precise averaging of stock prices over deployment.
time.
• Best of both worlds: Combining PMS and Mutual Fund
• No Portfolio Limitations & Regulatory Restrictions: Advantages: AIF CAT III combines the flexibility in
Unlike mutual funds, PMS does not have allocation limits allocation found in PMS with the execution efficiency of
per stock or sector. Mutual funds often face regulatory a pool account, similar to mutual funds. This unique
restrictions that can lead to limitations on investment blend of features ensures that investors can access the
options. For example, large-cap mutual funds may have best of both worlds in a single investment vehicle.
an 80% allocation to large-cap stocks, while multicap
funds may follow a 25/25/25 sector allocation rule. PMS These advantages highlight the diverse and dynamic
provides the flexibility to allocate investments without landscape of alternative asset management in India,
these limitations. catering to the specific needs and preferences of inves-
tors, from customisation to flexibility and the opportuni-
AIF (CAT III) ty to explore a broad range of asset classes.
In conclusion, the Indian alternative asset management
• Opportunity to invest in different asset classes: AIF sector is on the cusp of a transformational decade, offer-
CAT III offers opportunities to invest in a diverse range of ing exciting prospects for investors, asset managers, and
asset classes, both in the listed and unlisted space. the broader financial ecosystem. As India's economy
Unlike PMS, AIFs can even invest in Initial Public continues to ascend, the alternative asset management
Offerings (IPOs), providing investors with access to new industry is well-prepared to ascend with it. It provides
and promising opportunities. investors with innovative and diversified avenues to
grow their wealth, backed by impressive numerical data
• Pool accounting with lesser restrictions: AIF CAT III points reflecting its potential for exponential growth.

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69 PMS & AIF SPECIAL EDITION - NOV 2023