Crisil Research, India’s largest independent and integrated research house, launched benchmark indices for the domestic alternative investment fund (AIF) industry. These indices cover all three AIF categories – I, II and III – and provide investors with a metric to compare the performance of a scheme with the peer set.

After a tepid start a decade ago, the Indian AIF industry has grown exponentially in recent years. A total commitment of Rs 3.85 lakh crore has been raised so far since 2012 up to June 2020. However, a common performance metric is conspicuous by its absence. The launch of AIF benchmarks by Crisil will plug this gap, by providing a metric to compare performance of AIFs with the category average.

Benchmarking develops a set of standardised performance metrics to help investors identify efficient fund managers, detect risks and take sound investment decisions. It also provides a yardstick to fund managers and other stakeholders (such as the board and internal committees) to compare themselves, and course-correct, where required.

The ensuing transparency would encourage fund managers to leverage on best practices and provides a level playing field to all stakeholders in the presence of only one performance differentiator: the relevant benchmark.

The benchmarks have been created to incorporate various facets of the industry and are aligned with global practices. For AIF categories I and II, the benchmarks use aspects such as pooled internal rate of return (IRR), multiples and realisation ratios. These benchmarks are based on vintage to bring uniformity in comparison of funds with a similar performance history.

For category III benchmarks, quarterly returns, along with respective assets under management, have been used to create an asset-weighted index at the category-level from the quarter in which at least three schemes were available to invest. Lastly, for all category benchmarks, returns are calculated on a post-expense, pre-carry and pre-tax basis, both in rupees and US dollars.

To compare performance of AIFs in each category, common category-level peer benchmarks have been created. As the industry matures, sub-category indices based on investment strategy and mandate will also be developed.

The data will be disclosed half-yearly (end-September and March), as per guidelines prescribed by the Securities and Exchange Board of India. It will be published on https://www.crisil.com/en/home/what-we-do/financial-products/alternate-investment-funds-benchmarks.html along with detailed methodology and report.