As they say, there is never a bad time to start a good thing. With the current global environment for fundraising and the startup industry facing some challenging times, the fund management industry is getting tested on both ends of the spectrum. Within this overall scenario, India continues to strengthen its position in the global markets as an important jurisdiction for investments and has received the least predictions of any recessionary situations.
This allows Indian fund managers to be optimistic about the overall potential for successful fund deployment and this is reflected in the overall growth of the Indian domestic fund industry, with more than a thousand AIFs now registered with SEBI. A recent publication has also predicted a robust growth rate of AIFs over the next few years, primarily based on the growing number of HNIs and their increasing acceptance of alternative investment products.
The Indian government has also continued to encourage innovation and the overall growth of the startup ecosystem through various initiatives such as Startup India, Atal Innovation Mission, Startup India Seed Fund, etc. With funding available from sources such as the Fund of Funds Scheme, fund managers can be optimistic about leveraging this base to raise further funds and the industry has indeed seen many first-time fund managers setting up their own platforms.
With India becoming the most populous country, the overall consumption and growth story continues to provide opportunities for first-time fund managers to create niche investment themes and differentiated investment offerings while entering the fundraising market.
Additionally, while the AIF industry has been growing quite well, it still represents a very small portion of the global alternative fund industry. With various changes in the regulatory framework such as the International Financial Services Center (IFSC) Fund Management regulations and the new Overseas Investment guidelines, the potential to explore investment opportunities at a global level is likely to allow first-time fund managers to expand their horizons across borders as well.
Of course, just like any entrepreneurial journey, first-time fund managers also face various challenges as they go about setting up the fund. Apart from typical issues such as managing costs, attracting the right talent, and negotiating competitive fees, etc., there are some specific issues that first-time fund managers may need to address.
For example, they may try to quantify and get a validation of their performance track record in some manner even though it is not easy to define the contribution of particular individuals in the success of an investment, especially in an institutional setup.
Additionally, considering the team size and their own background, first-time fund managers may need to plan appropriately to comply with the specific regulatory requirements such as educational qualifications, investment experience, and net worth requirements, etc.
Another area of challenge is the constantly evolving tax and regulatory landscape, which can impact some of the assumptions that may have been made at the drawing board stage. Hence, it would be useful for first-time fund managers to leverage their network of advisors to remain updated on the relevant changes.
Moreover, sometimes, while the ideal structure for the fund may be a little different, first-time fund managers may be forced to start with a less optimal structure initially due to the lack of a team or constraints on time.
While all fund managers walk a tightrope in terms of managing investor expectations, identifying, and performing due diligence for investments, nurturing the portfolio, and preparing for successful exits, first-time fund managers may find the hurdle to be higher due to some of the aforementioned constraints and they may need to be flexible to adapt their structure to the changing framework.
Having said this, the possible significant benefits at the end of this journey and the satisfaction of creating a personal brand and strategy will continue to encourage first-time fund managers to step in and test the waters.
Himanshu Mandavia is Partner, Price Waterhouse & Co LLP. Views are personal.
