Despite the inherent differences between hedge funds and private equity funds, hybrid funds are gaining popularity. There is a large investor base for hybrid funds, which is why we have seen more of these types of vehicle over the past year or so.
Thanks to the convergence trend of Private Equity (PE) funds and Hedge Funds (HFs), Indian capital markets have been witnessing the gradual emergence of a new breed of alternative investments known as hybrid funds or multi-strategy funds. These funds offer the best of both the PEs and HFs, which have since been gaining ground in India. Out of the $40 bn invested by PE firms in India, over the past three years, $9 bn were through hybrid funds. Analysts opine that these funds can offer a competitive edge to the PE managers over other alternative investments.
Traditionally, HFs and PEs were regarded as two distinct alternative investment classes. Except for the fact that both are private pools of capital, the rest of their features, like investment philosophies, target investors and organizational cultures, are entirely different.
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