INSUBCONTINENT EXCLUSIVE:
By Ronojoy MazumdarAssets at Indian hedge funds slumped by a record last year, and their managers are getting ready for more pain to come.
A
July tax increase on returns from alternative investments was the main reason for the slide, according to Vaibhav Sanghavi, who oversees
funds at Avendus Capital Public Markets Alternate Strategies LLP
The levy was increased by a fifth to 42 per cent, he said
India passed up an opportunity to tweak the tax regime on the investment category in its budget last month, making it unlikely that a
reprieve will be offered anytime soon.
The higher tax is hurting prospects for growth in the industry, which is already tiny as
alternative-fund holdings comprise only about 0.1 per cent of total equity assets in India, compared with 5 per cent globally, Sanghavi
Domestic hedge-fund assets dropped 6 per cent to $4.6 billion last year from 2018, according to annual data from Eurekahedge, a database for
investments during market swings
But they both face the challenge of attracting and retaining investors, who have the option of shifting to mutual funds which are taxed at a
The equities account gets taxed at a lower rate
limited options in taking short or long positions on individual stocks they may consider mis-priced.
Indian long-short funds fare worse than
global peers in delivering a return that differs from the benchmark
Their so-called beta -- a measure of how closely they track an equity benchmark -- is 0.71, according to Eurekahedge
That compares with 0.48 for the whole of Asia
A value of 1 indicates returns mirror those of a benchmark.
Despite the challenges, long-short funds still have some appeal for investors
who oversees assets management at Ambit Wealth Management Pvt
The problem is entirely solvable, but we will need to work carefully with the government and regulators to understand each issue they
