INDIAN HEDGE FUNDS “MULTI BILLION DOLLAR MOMENT”
Hedge funds located in India are less than half-a-billion dollars in assets, but a regulatory change may help their case. The Reserve Bank of India (RBI) on 16 November, 2015 removed restrictions on alternative investment funds —of which hedge funds are a sub-category—based in India accepting foreign capital. This paves the way for India-based funds to capture a bigger part of the multi-billion dollar India-dedicated hedge fund assets.
The total amount managed by all India-dedicated hedge funds is $3.6 billion, of which $3.2 billion, or 88.63%, is managed by managers based outside the country. That is of course, only a minuscule portion of the global hedge fund industry, which has a size of $2.24 trillion, according to data from hedge-fund tracker Eureka hedge.
FOREIGN FUNDS DOMINATE IN TERMS OF ASSET
The preference for India-dedicated funds to be managed outside the country comes despite the better track record of funds located within the country. Local hedge fund managers have outperformed foreign ones on seven out of nine occasions since 2007.
LOCAL FUNDS HAVE GIVEN HIGHER RETURNS
India-focused hedge funds based in the country have typically outperformed those based outside the country. The higher returns are attributed to the advantages of local knowledge and having feet on the ground, compared with offshore managers who may be hampered by distance.“The new dispensation allows foreign investors to put their money in all alternative investment funds, including hedge funds. Hence, subject to prescribed conditions, investments are likely to happen”. Earlier, India-based hedge funds wanting foreign capital had to approach the Foreign Investment Promotion Board, usually without success.