Alternate assets: The new cash cow for financial corporates

Even as private equity funds struggle to raise money, financial services firms—backed by their wealth management business and distribution strength—are growing their alternative asset management aggressively

Financial services firms are leveraging their wealth management business to raise capital for their alternate asset funds

These funds are launching new strategies at a rapid rate to raise capital from domestic and offshore investors

FinServ firms are now moving away from pure lending to fund strategies as it directly adds to their return on equity and increases profitability

With the rise of the alternate asset businesses of financial corporates, the lines are blurring for what constitutes a private equity fund business

This is not a well-known story, so it bears telling. Five years back, in 2013, a global real estate fund decided to shut shop. Its partners, though, decided to stick around. With a plan to raise a Rs 300-crore ($42.8 million) residential fund. Over the next two years, they met investors across New York, Hong Kong, and Singapore, but capital never found its way. They didn’t give up easy. Kept at it for a good two years, before realising that it wouldn’t work out and it was best to shut shop. In 2015, they went back to traditional jobs, managing a fund, whatever was on offer; their entrepreneurial turn scuppered.

It was true back then. It is true today. Raising capital isn’t easy. For you, me, companies, and it’s no different for private equity funds too.

Sample this: According to Preqin, a research firm which collates data on private equity funds, 20 funds have managed to raise $1.7 billion since January this year. Last year alone, Indian general partners (GPs) managed to raise $3.6 billion across 35 funds. General Partners are fund managers who manage capital.

Money isn’t easy to come by. Which is why Edelweiss Financial Services sticks out. Starkly.

Here are all the things that Edelweiss has going for it at the moment:

Edelweiss Alternative Asset Advisors Ltd (EAAA), the alternate asset arm of the company has been raising capital across strategies. Its asset under management (AUM) for its alternative assets business stands at Rs 20,100 crore ($2.87 billion) at the end of Q1FY19. This is close to double of what it was at the same time last year—Rs 11,800 crore ($1.68 billion). To be clear, 34% of Edelweiss’ AUM under this business comes from multi-strategy funds and portfolio management services (PMS).
Its alternatives funds include residential real estate, commercial real estate, infrastructure yield fund, distressed asset fund, structured debt and a pre-IPO fund. And by the end of September, it is looking to raise further capital in all of its existing funds. It had earlier launched a venture capital fund of Rs 300 crore ($43 million) which was funded by Edelweiss’ balance sheet. Currently, it is not looking to raise any capital under the same.
Edelweiss is new to pure play private equity. It launched its first PE fund in 2017—its private investment in public equity (PIPE) fund. A PIPE fund invests in a listed company at an agreed price rather than directly through market transaction. It also launched an infrastructure yield fund in 2018, which has managed to raise $350 million and plans to raise between $750 million-$1 billion under the same.

Now, the curious bit is the creation of a new kind of alternative assets business in India.

AUTHOR

Pooja Sarkar

Pooja has been a journalist for about a decade now. She has worked at DNA Money, Business Standard and Mint. In her last assignment, Pooja was a chief correspondent at ET Now. At The Ken, she will write on private equity and the venture capital ecosystem. This, in the context of company strategy. Along with work, she is picking up important life skills these days, like the art of knitting a muffler.

View Full Profile

Others tell you what. We tell you the ‘So What?’

Read articles that decode the most significant shifts happening around business, technology, startups and healthcare. 1000+ articles for subscribers of the India edition. 150+ articles for subscribers of the Southeast Asia edition. Plus premium newsletters that help you make sense of the world around you.

So much journalism in India is superficial.

Articles are generic, almost cookie-cutter in their approach. And they don’t provide enough context on the issues they cover. The Ken is different. I don’t always agree with everything they say but I appreciate their commitment to publishing deeply reported narratives and investigations. Their reporters find new ways to analyze tech among other industries. And that’s always worth a read.

Sid Talwar / Co-Founder and Partner / Lightbox Venture Capital

As entrepreneurs, we thrive on being in the know at all times.

A personal subscription to The Ken was a no brainer. But as startup founders, this isn't enough. Team members also need to be in the know, for everyone handles customer-facing responsibilities and an ecosystem change that impacts customers also impacts us

Kiran Jonnalagadda / Co-founder / HasGeek and Internet Freedom Foundation