The Alternative Assets market in India, estimated at $400 billion now is expected to reach $2 trillion over the next ten years, driven by a rise in sophisticated investors, portfolio diversification, desire for higher alpha and regulatory developments, Avendus Capital said in a report.

Globally the Alternatives market is valued at $20 trillion, about a fifth of the total markets’ assets under management. Within the alternatives space private equity and real assets have been largest asset classes, but now investors are diversifying into new categories such as private credit, complex hedging strategies, natural resources such as oil, gas and metals and now cryptocurrencies.

In India high net worth individuals are demanding more diversified products that can generate long term alpha. The share of alternatives in HNIs’ AUM is estimated at around 7-8 per cent, which indicates significant under penetration and a key driver of growth for the alternatives market, the report said.

Investors are increasingly seeking to diversify their portfolios to mitigate risks. Alternatives offer a range of investment options across various asset classes, providing a hedge against market volatility and enhancing potential returns, the report said.

There are multiple headwinds propelling Indian investments into alternatives. Family offices and ultra wealthy individuals are looking at more complex products as part of wealth management. The report said that middle income families will continue to witness growth with rising appetite for other assets classes such as real estate investment trusts, infrastructure investment trusts, and private credit.

The number of HNIs and ultra HNIs are expected to double in India over the next five years and their wealth is expected to touch $2 trillion  by 2027. This will drive the growth of differentiated products such as AIFs, which will then be around 15 per cent of their total managed wealth.

A comprehensive regulatory framework for AIFs with standardised approach to valuation of their investment portfolio has also aided in the emergence and growth of AIFs.