Why are Real Estate Investment Companies turning to alternative investment funds?

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Real estate investment companies are always actively exploring new strategies to diversify their portfolios, and meet the evolving investor demands in today’s dynamic financial landscape. Alternative investment funds (AIFs) have become one of the key notable shifts for financing and structuring. But why are real estate investment companies gravitating towards AIFs? And what is an alternative investment fund? And how is this reshaping the future of real estate investments?

What is an Alternative Investment Fund?

It is a private pooled investment structure that collects capital from investors to invest in asset classes that are beyond traditional stocks. Some examples of these assets include private equity, hedge funds, infrastructure, commodities and other real estate assets. 

In India, AIFs are monitored under SEBI regulations and are categorised into 3 types:

Category I – Socially beneficial ventures

Category II – Private equity and debt

Category III – Hedge funds and complex strategies

Why are investors interested in AIFs?

Strategic flexibility and customization:

Traditional funding systems do not allow for customization of investment models, but AIFs allow for a tailored structure and customizable return portfolio and control over asset selection which is drawing investors. An investor can leverage this flexibility in a market that demands speed, creativity and adaptability. 

Access to capital:

With long gestation periods and short-term financing, real estate investors can be under tremendous pressure for financing. AIFs attract institutional investors who are looking to invest in large scale and long timeline projects, allowing the real estate financing companies the liberty to execute strategies without the pressure for immediate returns. 

Risk adjusted returns:

Risk analysis and management is a very important aspect of investing in a market that is volatile with rising interest rates. AIFs provide the opportunity for higher risk adjusted returns for real estate investors allowing them to access capital with more flexibility and align them with unique risk profiles. 

Diversification and Innovation:

AIFs provide real estate investors to diversify their profiles by investing in emerging markets like co-living, warehousing and data center assets. By tapping into these niches and experimenting with new formats of investing without diluting their core equity, more and more investors are choosing to invest through AIFs. 

Conclusion:

What is an alternative investment fund, is a question every investor has been asking recently, especially in the real estate sector. Real estate investment companies are leveraging the flexibility and accessibility that AIFs provide as a strategic tool to innovate, create and scale their portfolios. As the investor appetite grows and the market demands diversify, AIFs are becoming the leading interest for many investors. 

AIFs are the future forward approach that many real estate investment companies are adapting to for its agile, relevant and resilient performance.

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Team Arbour

Founded in 2021, Arbour Investments has rapidly emerged as India’s leading real estate-focused investment management fund, specializing in both residential and commercial real estate sectors. 

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