FROM OUR BLOG
India's Alternative Investment Funds: A stellar decade & The Opportunity Ahead
May 8, 2025
In a global investment landscape starved for alpha, India's Alternative Investment Funds (AIFs) have emerged as exceptional performers, consistently generating market-beating returns over the past decade. With the AIF industry growing at a remarkable CAGR of 26% since 2016 and reaching assets under management of $75 Bn, these sophisticated investment vehicles have demonstrated their ability to capture India's economic dynamism while offering global investors access to one of the world's most compelling growth stories.

Category Wise Funds guide:
The Performance Story: Impressive Returns Across Categories
Venture Capital Champions
While 2016-2017 vintage funds delivered exceptional returns (24-32% IRR), our performance data reveals a more nuanced story across time horizons. As shown in the multi-strategy performance chart, venture capital has consistently generated the highest alpha among all alternative strategies, delivering an impressive 15+ percentage points annually over public market equivalents across the 10-year horizon.
The post-pandemic recovery trajectory demonstrates venture capital's resilience across market cycles:
Enterprise Tech & SaaS: Leading the recovery with first-quartile funds achieving 18-22% IRR, driven by India's emergence as a global SaaS hub
Fintech: Strong rebound in late 2022-2023 after regulatory clarity, with funds focused on infrastructure plays outperforming consumer-facing models
Climate Tech & Sustainability: Newest breakout category showing 20%+ projected IRRs as global capital increasingly targets India's clean energy transition
This performance pattern is particularly striking when examining returns across different time periods—VC consistently outperforms all other strategies in the 5-year and 10-year horizons, though with higher volatility in shorter timeframes (1-year and 3-year periods), reflecting the J-curve effect inherent in early-stage investing.
Recent VC funds (2022-2023 vintages) are on track to potentially match or exceed the 2.96 TVPI multiple achieved by the standout 2017 vintage, albeit with more disciplined valuations and stronger focus on unit economics. This represents a more sustainable growth model for the coming decade compared to the frothy 2016-2018 period.

Private Equity's Consistent Alpha
Private equity strategies have demonstrated remarkable consistency delivering 20%+ return over the 1-year, 3-year, 5-year & 10-year time frames. This outperformance has been driven by:
Strategic investments in mid-market companies poised for consolidation
Operational improvements that significantly boosted EBITDA margins
Successful exits through strategic sales and public listings
What's particularly notable is the resilience of these returns throughout economic cycles, including the pandemic period. FY2020 vintage funds still delivered 14.4% IRR despite launching during unprecedented global uncertainty.
Hedge Funds: Superior Performance With Improved Risk-Adjusted Returns
India's hedge funds have consistently demonstrated their value proposition, particularly in managing market volatility while delivering superior returns. The one-year returns of 31.1% (as of March 2024) showcase skilled managers' ability to generate alpha across diverse market conditions.
As the below chart clearly illustrates, AIF Category III funds—especially hedge fund strategies—have significantly outperformed the global Preqin Hedge Fund Benchmark across all time horizons. Most notably, Indian hedge funds delivered approximately 35% returns over the past year compared to under 10% for global hedge fund benchmarks, while maintaining comparable volatility profiles.
The performance advantage remains consistent across longer periods:
1-year: 31.1% vs. 24.2% for Nifty 50 TR
3-year: 16.0% vs. 14.9% for Nifty 50 TR
5-year: 14.9% vs. 13.8% for Nifty 50 TR
10-year: 16.7% vs. 12.3% for Nifty 50 TR

The below chart from Prequin is particularly revealing: It shows that there is a wide dispersion of performance amongst the managers & performance follows the expected normal curve. A critical factor is therefore identifying, accessing & investing in the small set of managers who have consistently generated returns of greater than 20%.

Private Debt - Countercyclical Performance with Attractive Risk-Adjusted Returns
India's private debt funds have demonstrated a compelling investment case, particularly when evaluated in USD terms. As the table below reveals, these funds have delivered consistent performance across different vintage years while offering significant downside protection.
While more recent vintages (2021-2023) show lower returns (7.4% to 5.1% USD net IRR), this reflects both the natural maturation curve of these younger funds and the shifting focus toward higher-quality credit opportunities with enhanced structural protections. The consistently high RVPI percentages (92.8% to 98.4%) for these recent vintages indicate substantial unrealized value that may drive stronger terminal returns as these portfolios mature.
What's particularly noteworthy is the remarkably low DPI percentages for 2021-2023 vintages, that indicate these funds are still early in their realization cycle.

Real Estate & Infrastructure: Sector Specialists Driving Strong Returns
Real estate and infrastructure funds have emerged as standout performers within India's alternative investment landscape, particularly for USD-based investors seeking both yield and appreciation.
In real estate, sector specialists focusing on logistics, data centers, and rental housing have substantially outperformed generalist strategies. The structural transition toward institutionalized real estate ownership has created significant opportunities for alternative managers with operational expertise. Funds deploying capital during 2018-2020, when liquidity was constrained for many developers, have shown particularly strong performance, with USD net IRRs in the 14-16% range and attractive net multiples between 1.6-1.8x for fully realized investments.
What's most compelling about both these sectors is their inflation-hedging characteristics and ability to generate USD-denominated returns through long-term contracts with built-in escalation clauses, making them particularly attractive for global investors seeking to diversify their India exposure beyond purely growth-oriented strategies.
Why India Stands Apart: The Global Alpha Advantage
India presents a unique opportunity in the global investment landscape. When examining outperformance across markets, India consistently leads:
Indian active managers demonstrate the highest benchmark outperformance globally across all time periods - 42-48% of Indian funds beat their benchmarks compared to just 13-15% in the US and 16-18% in Europe.
This "alpha gap" reflects several structural advantages in the Indian market:
Information asymmetry creates opportunities for diligent research
Lower institutional coverage of mid and small-cap segments
Rapidly evolving sectors creating pockets of mispricing
Market inefficiencies that skilled managers can exploit
Looking Ahead: The Next Decade of AIF Growth
The next decade promises even greater opportunities for India's AIF industry based on several converging trends.
Expanding Opportunity Set
India's Scale Transformation Creates Unprecedented Investment Universe
As our infographic reveals, India's corporate landscape has undergone a dramatic transformation. Between 2010-2024, companies exceeding $1 billion in value grew 2.4x (329 to 791), while those over $10 billion increased 3.3x (64 to 210). This expansion significantly broadens the investment universe for AIFs.

Simultaneously, market segment definitions have evolved substantially—mid-cap upper limits have grown from $6 billion (2017) to a projected $30 billion (2025), with small-cap limits rising from $1.8 billion to $8.4 billion over the same period, increasingly aligning with global benchmarks.
This transformation spans multiple sectors, including technology, financial services, healthcare, and consumer markets, not just manufacturing. [See our sector-specific analysis blogs for details]
India's total market capitalization has surged from $1.6 trillion (2017) to approximately $4.8 trillion (2025), creating fertile ground for alternative investment strategies across the entire market spectrum.
Deepening Private Markets
India's private capital markets remain underdeveloped at just 2.3% of GDP compared to 9.8% in the US—representing massive headroom for growth as India's economy expands toward $5 trillion by 2027 and potentially $10 trillion by 2035. [Explore our detailed private markets evolution report]

Number of IPO issues and IPO issue amounts-

The Investment Thesis: Why Global Investors Should Act Now
The performance data makes a compelling case for global investors to allocate capital to Indian AIFs:
Superior Risk-Adjusted Returns: Indian AIFs have delivered higher Sharpe ratios than comparable investments in developed markets
Portfolio Diversification: Increasing divergence with US markets provides genuine diversification benefits
Growth Exposure: Direct participation in one of the world's fastest-growing large economies
Professionalizing Ecosystem: Increasingly sophisticated fund managers applying global best practices
The Indian AIF industry is reaching an inflection point similar to what China experienced in the early 2000s. This suggests that early global investors who enter now stand to capture significant first-mover advantages.
Data Speaks to India's Alpha Opportunity
(Read more about India’s Alpha trends)

While the performance of Indian AIFs is compelling, access has traditionally been challenging for global investors due to regulatory complexity, relationship requirements, and limited visibility into the best opportunities.
GIFT City - India's only International Financial Center solves the structural issues - Tax, Regulatory complexity:
USD-based investing from anywhere in the world
Zero capital gains tax on investors' hands in India
No Indian bank account or documentation like PAN/Aadhaar required
TresoWealth builds on these legal & regulatory infrastructure reforms by providing a comprehensive platform that connects global investors with India's top-performing AIFs. Our rigorous due diligence process, seamless onboarding and transparent monitoring & Investor communication platform remove the traditional barriers that have kept global capital on the sidelines. As India's alternative investment landscape continues its remarkable growth trajectory, the question isn't whether to participate, but how quickly you can secure your allocation to the next decade of India's wealth creation story.
The data is clear: India's AIFs have not just performed well—they've excelled. The structural advantages driving this outperformance remain firmly in place, suggesting the alpha opportunity may even strengthen in the coming decade.
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