Alternatives Could Become A USD 1-Trillion Market In Five Years: Lakshmi Iyer

India's investment landscape has undergone significant changes over the past decade, expanding beyond traditional offerings to include private markets, real estate, and sophisticated equity strategies. Lakshmi Iyer, Group President–Investments at Bajaj Finserv and MD and CEO of Bajaj Alternates, predicts that alternative investments could reach a $1-trillion market within five years.

In an interview with Sheryll D’Souza of The Free Press Journal, Iyer discussed the changing role of investors, managing volatility, the impact of artificial intelligence, and the evolving wealth creation landscape.

India's investment journey began with mutual funds, which helped convert savers into investors. In 1999, raising Rs 100 crore was a significant milestone, while reaching Rs 1,000 crore required jubilant celebrations. Today, such figures are relatively modest for institutions managing large capital pools. Financial literacy has improved dramatically, and investors now understand products, risks, and diversification better than ever before.

Alternative investments are not ideal for novice investors but are more suitable for those with larger portfolios who have previously invested through conventional avenues. Alternatives Investment Funds (AIFs) provide access to asset classes and strategies that may not be readily available through mutual funds or portfolio management services.

These can encompass structured credit, private equity, real estate, and start-ups. AIFs can be regarded as an addition of proteins and vitamins to a portfolio already consisting of basic carbohydrates.

The concept of asset allocation has expanded, with diversification no longer limited to equities, fixed income, gold, and physical real estate. Within equities, investors can now consider absolute-return strategies designed to reduce portfolio volatility. Systematic investing using machine learning and artificial intelligence is another emerging trend, offering additional diversification options. These strategies could play a significant role in the industry's growth over the next five years.

While alternatives cannot eliminate volatility, they can provide access to uncorrelated or less-correlated assets, enabling investors to better navigate market fluctuations. No investment vehicle, including AIFs, can guarantee zero risk. Instead, the benefit lies in combining strategies that do not always move in tandem, thereby diversifying the portfolio's risk exposure.

The Indian alternatives market currently stands at around Rs 20 lakh crore, or approximately $200 billion, and is expected to hit the $1 trillion mark within five years. This growth is fueled by the emergence of new players and strategies, as well as the availability of talent, investment acumen, and capital in India.