Domestic investors with deep pockets are warming up to putting money in Alternative Investment Funds (AIFs), channelling proceeds from stock market gains and sale of businesses, said Srini Sriniwasan, Managing Director, Kotak Alternate Asset Managers Ltd (KAAML), a wholly-owned subsidiary of Kotak Mahindra Bank.
In an interaction with businessline, Srini, who is managing funds aggregating about $10 billion invested across real estate, infrastructure, private equity and private credit, opined that until the “knot” restricting domestic insurance and pension funds is untied, India will remain overly dependent on foreign “Gangotris“ (source of capital) for its growth.
Are domestic investors becoming comfortable investing in AIFs?
Historically, 80–85 per cent of our capital came from foreign institutional investors. However, we are seeing a massive shift toward domestic capital. Two months ago, we announced the first close of the Kotak Yield and Growth Fund at ₹4,000 crore, with a final target of ₹5,000 crore. This scale of domestic fundraising was impossible just three years ago.
What has lead to the change in the Indian mindset towards AIFs?
Wealth creation and maturity. Investors who made money in the stock market or by selling businesses now have a higher risk appetite and a better understanding of AIF products.
What is hindering flow of domestic capital into AIFs?
While people get enamoured by global fund managers, they forget that these firms are just “tributaries.” The “Gangotri“ (the source of capital) is actually the US pension funds and endowments. Since 2005, our strategy has been to bypass the middlemen and go straight to the source. Our first major institutional breakthrough was a $250 million mandate from the Abu Dhabi Investment Authority (ADIA) in 2011.
The Indian “Gangotri” is “choked.” For example, under IRDAI regulations, LIC alone could invest ₹1 lakh crore (5 per cent of its corpus) into AIFs. Currently, they have invested less than ₹10,000 crore. When it comes to Indian PSU institutions, probably it is a case of “once bitten, twice shy.” Many of them lost money with unproven fund managers during the 2005–2007 boom. There needs to be a fundamental recognition that this is risk capital. The current “institutional” investors—insurance companies and pension funds like the NPS—have zero risk appetite. Regulations force them toward AA-rated and above companies. Until the “knot” restricting insurance and pension funds—is untied, India will remain overly dependent on foreign “Gangotris“ for its growth.
Is KAAML looking at any new fundraising?
We are currently raising our third Strategic Situations Fund (Corporate Credit), with a $2.0 billion target. Our existing investors are already committing capital, and we expect a final close by September or October 2026. The first two funds — Fund 1($1 billion) and Fund 2 ($1.5 billion) — have been fully invested.
How do you see the AIF industry and your firm growing over the next decade?
Our growth is tied to the three main vectors driving India’s economy: infrastructure, technology, and start-ups. None of these can scale without a robust credit ecosystem. There is a common misconception regarding “headline” investments. For instance, when a tech giant announces a $10 billion investment in data centres, roughly $7 billion of that is typically sourced as credit from banks. It isn’t all coming out of the investor’s pocket. To sustain these growth announcements, India needs a massive credit market—and we simply aren’t there yet.
Can the domestic banking sector meet this demand?
Our banks are pretty small compared to the size of the economy we aspire to build. They are fragmented and often lack the agility to meet rapid capital requirements. In developed markets, the corporate bond market provides this liquidity, but in India, the bond market is still dysfunctional.
The primary investors in our bond market are the banks themselves, creating a circular system with no real independent depth. Without a liquid bond market or specialised credit providers, the economy faces a significant bottleneck. Our role is to provide that necessary, non-bank credit to fuel these large-scale economic vectors.
India’s next generation entrepreneurs find it difficult as they don’t have the time for the slow processing cycles of PSU banks, and the bond market has no takers for them. So, in many cases, AIFs are the only viable primary source of funds. But even for the “big guys,” alternative funds are essential because they provide specialised financing that banks traditionally cannot.
What makes the AIF model relatively better suited for financing the three vectors you mentioned than a bank or an NBFC?
It comes down to capital structure and flexibility. Banks and NBFCs borrow money to lend; they must collect quarterly interest and principal to service their own debt. AIFs don’t borrow—they invest pooled capital. AIFs can sync repayment schedules with a project’s actual cash flow. We are a unique “animal” that can provide solutions that are part-debt and part-equity. Our investors are high-net-worth individuals who understand the risk-reward trade-off. They know things can go wrong, whereas a bank’s depositor expects absolute safety.
Traditional lenders are often blind to intangible value. In private credit, we value the brand equity and customer loyalty as the true collateral. We don’t just look at the plant; we look at the business’s ability to generate future cash.
