As India’s wealth grows, HNIs look beyond equity, debt and gold to alternative investments: Expert

India’s expanding pool of affluent investors is increasingly looking beyond traditional asset classes such as equities, debt and gold, with alternative investments emerging as a growing component of high-net-worth individual (HNI) portfolios.

Shekhar Daga, Head–Private Capital at ICICI Prudential AMC, said the shift is being driven both by existing HNIs and family offices increasing their allocation to alternatives and by the growing number of investors entering the HNI segment.

According to Daga, as the middle class moves into the upper-middle-class segment and the latter progresses into HNI territory, investors’ portfolios tend to diversify beyond conventional assets. Over the past four years, HNIs have increasingly allocated capital to alternative investments, he said.

The alternatives universe broadly includes Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS). Through AIFs, investors can gain exposure to listed equities, real estate and private capital, including private equity and private credit.

Private credit involves lending to companies through funds rather than banks, while private equity involves investing in unlisted companies. However, Daga cautioned that private capital is not a uniform asset class.

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Private credit itself spans performing credit, real estate credit, special-situation credit, distressed credit and venture debt, each carrying different risk-return characteristics. Investors, therefore, need to understand the underlying strategy rather than relying solely on the broad “alternatives” label, he said.

Private credit sees structural demand

Daga expects the alternatives industry to grow at around 25% annually over the next decade. He attributed the outlook partly to the stronger balance sheets of corporate India and improved borrower discipline following the implementation of the Insolvency and Bankruptcy Code in 2016.

The private credit market has also attracted global investors, highlighting the growing institutional interest in the segment.

Demand for private credit is partly structural because banks and NBFCs cannot finance certain transactions. While conventional lenders can provide working-capital and capital-expenditure financing, regulatory restrictions can prevent them from funding transactions such as the acquisition of equity shares or certain land purchases.

This creates demand for more flexible sources of capital, potentially supporting growth in performing credit.

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Real estate and credit offer opportunities

Daga sees opportunities across the alternatives spectrum, depending on an investor’s risk appetite and return expectations. In real estate, he highlighted yield-generating commercial properties and premium residential developments.

Grade A office assets are benefiting from demand that is supporting office yields, while Mumbai’s premium residential redevelopment market has attracted domestic and international capital amid strong end-user demand, limited availability of new land and rising buyer aspirations.

Performing credit also remains an important avenue, offering structured, senior and asset-backed financing for growth, acquisitions and strategic requirements.

However, Daga said investors often underestimate exit risk. Unlike mutual funds, private investments generally lack a deep secondary market and cannot simply be redeemed.

He advised investors to prioritise principal protection, examine underwriting guardrails and margin of safety, assess the manager’s track record across business cycles and understand the collateral backing investments before committing capital. A diversified investor, for instance, could consider a mix of 40% listed equity, 40% listed debt and 20% private capital, depending on individual circumstances and risk tolerance.

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