New AIF benchmarks may be coming soon, Crisil doing data collection

The data collection process is being carried out by CRISIL

Alternative investment funds may soon have benchmarks for measuring and comparing performance. Rating agency CRISIL had already been collecting data for their creation by reaching out to various funds, according to two people familiar with the matter. The Indian Private Equity and Venture Capital Association (IVCA) had sent a communication to members, requesting them to share data for the exercise in August, said one of the sources.  

A benchmark is basically an index against returns of which a fund can measure its performance. For example, many mutual funds would have the S&P BSE Sensex as a benchmark to determine if the fund manager is doing better than the broader market. Similar benchmarks for alternative assets are less often used, according to experts, since the underlying assets are often illiquid or difficult to classify because of diverse strategies.

Vikaas M Sachdeva, chief executive officer of Emkay Investment Managers, suggested indices which combine multiple asset classes in various proportions could be a way to handle the complexity of illiquid investments. This could be an index with different weighting to equity and debt. While different options could be explored, he stressed a definite metric would be an improvement over the current situation where performance benchmarking is often nebulous. "You need to have some standardisation," he said.Vijay Krishna Kumar, head of liquid alternatives at IDFC Asset Management Company, said that benchmarking should avoid clubbing completely different strategies together. Segre­ga­ting them into smaller groups is likely to res­ult in better benchmarking, according to him.

 

 

“That’s got more informational value,” he said. “While CRISIL currently is focussing on the benchmarks for each of the three categories on an aggregate basis, it intends to create and launch benchmarks for various subcategories... (and)...vintages,” said the IVCA communication sent to members of which Business Standard has a copy, adding that sub-categories would come in the second phase of the exercise.

CRISIL declined to comment.  An e-mail query was also sent to IVCA on details of the exercise and its progress.

Gopal Srinivasan — founder, chairman and managing director of TVS Capital Funds, and IVCA board member — in an e-mailed respon­se estimated that India needs over Rs 10 trillion in capital channelled through alternative fun­ds in its bid to become a $5-trillion economy. This is three times the current pool and better benchmarking is likely to help draw in that capital through a higher trust from high net-worth individuals (HNIs) and other investors.

“Only with robust measurement of performance will capital flow freely into AIFs,” he said, estimating more than half the funds raised in ru­p­ee capital come from HNIs and family offic­es.   The regulator in June had extended the deadline for creating benchmarks to October 1, 2020, because of the Covid-19 pandemic. It was earlier supposed to be ready by July 1, 2020.

The regulator had introduced benchmarking through a circular on February 5, 2020. This followed a consultation paper in December 2019 on the subject.  The consultation paper had noted that lack of uniform standards meant that there was no authenticated source to verify performance or compare funds. “...it is felt that there is a need to provide a framework to benchmarking the performance of AIFs to be available for the investors and to minimise the potential of mis-selling,” it said.