AIFs Outperform Public Market Equivalents: CRISIL and S&P Global Report
According to a recent report by CRISIL Intelligence and S&P Global, alternative investment funds (AIFs) have offered better returns compared to their public market equivalents. The study, which covers the March 2025 benchmarking cycle, indicates that AIFs in all four major categories—early-stage equity funds, growth and late-stage equity funds, debt funds, and real estate funds—have outperformed their public market counterparts.
The methodology used in the report considers funds with schemes having the first close date before the end of fiscal 2021. This includes 56 debt funds, 66 real estate funds, and 145 equity funds (111 early-stage funds and 34 growth and late-stage funds). 'Early stage' refers to Category I and II equity funds that have invested more than 50% of their capital in Series A funding rounds and below, while 'growth and late stage' refers to Category I and II equity funds that have invested more than 50% of their capital in post-Series A funding rounds. Debt funds include sector-agnostic debt funds and venture debt funds, and the returns are on a post-expenses, pre-carry, and pre-tax basis.
The report highlights the superior performance of AIFs compared to market indices. In the early-stage equity category, AIF funds have offered a return of 22% over a four-year period, from March 2021 to March 2025, compared to 13.7% offered by the BSE Sensex TRI. The growth and late-stage equity funds have reported returns of 17% against the 14.3% returns by the BSE Sensex TRI. Debt AIFs have been the best relative performers, with returns of 14.5%, more than double the 6.8% offered by the Crisil Composite Bond Index. Real estate AIFs have also outperformed, offering a return of 8.9% compared to the 7.3% return from the Crisil Composite Bond Index.
Here is the complete list of AIF returns versus public market benchmarks:
| Category of Funds | AIF Pooled IRR | Public Market Benchmark | Benchmark Return | |---------------------------|----------------|-------------------------------|------------------| | Early-stage equity funds | 22.0% | BSE Sensex TRI | 13.7% | | Growth & late-stage equity| 17.0% | BSE Sensex TRI | 14.3% | | Debt funds | 14.5% | Crisil Composite Bond Index | 6.8% | | Real estate funds | 8.9% | Crisil Composite Bond Index | 7.3% |
Debt AIFs have shown the strongest cash conversion, with an average distribution-to-paid-in capital (DPI) of 0.95. DPI is a key performance metric for AIFs, measuring the amount of cash a fund has returned to investors relative to the capital they have contributed. A DPI of 1 means the fund has returned the full invested capital, while anything above 1 indicates profit distributions. As of March 2025, 69.6% of debt AIF schemes have reached a DPI of 1, indicating complete return of the total invested amount. Debt AIFs take an average of 5 years to reach a DPI of 1.
Real estate funds offer a moderate realization of profit, taking around 6 years to reach a DPI of 1. These funds have an average DPI of 0.84, and approximately 47% of the funds have achieved a DPI of 1. Growth and late-stage equity strategies have also shown steady exit opportunities, with an average DPI of 0.63 and 23.5% of the funds reaching a DPI of 1. Early-stage equity AIF strategies have a longer gestation period, taking 7.7 years to reach a DPI value of 1. The AIFs in this segment have an average DPI of 0.40, and 21.6% of the schemes have achieved a DPI of 1.
The detailed numbers are as follows:
| Category of Funds | Total Schemes | Schemes with Some Distribution | Average DPI | % of Schemes with DPI = 1 | Avg. Years to Reach DPI = 1 | |---------------------------|---------------|--------------------------------|-------------|---------------------------|-----------------------------| | Early-stage equity funds | 111 | 92 | 0.40 | 21.6% | 7.7 years | | Growth & late-stage equity| 34 | 32 | 0.63 | 23.5% | 5.7 years | | Debt funds | 56 | 55 | 0.95 | 69.6% | 4.9 years | | Real estate funds | 66 | 64 | 0.84 | 47.0% | 5.9 years |
Overall, the report underscores the potential of AIFs to deliver higher returns and better cash flow profiles compared to traditional public market investments, making them an attractive option for investors seeking diversified investment opportunities.
