AIF Fund Managers

Introduction

• Who Are AIF Fund Managers?
• What Does an AIF Fund Manager Do?
• 8 Factors to Evaluate Before Choosing an AIF Fund Manager
• Questions to Ask an AIF Fund Manager Before Investing
• Conclusion

Introduction

Two AIFs can invest in the same sector, target similar companies, and even launch at the same time, yet deliver vastly different returns. Ever wondered why?

Well, the difference often isn't the investment theme, but the "AIF Fund Manager" managing it as well.

Unlike mutual funds, AIFs invest in less liquid, less transparent assets where manager expertise plays a much bigger role. Their ability to source deals, assess risks, negotiate terms, and decide when to exit can significantly influence investment outcomes.

So before investing, here's how to evaluate the person managing your money.

Who Are AIF Fund Managers?

An AIF fund manager is the entity responsible for managing an Alternative Investment Fund's portfolio and making investment decisions on behalf of investors.

Under the SEBI (Alternative Investment Funds) Regulations, 2012, every AIF must appoint a fund manager who will be responsible for managing the fund in accordance with the stated investment strategy and applicable regulatory requirements.

From identifying investment opportunities to managing risks and executing exits, the AIF fund manager plays a very central role in achieving the fund's investment objectives.

But here come the primary pillars of an AIF structure:

What Does an AIF Fund Manager Do?

An AIF fund manager is responsible for managing the fund throughout its lifecycle. But, here's what else they do:

Key responsibilities of an AIF fund manager include:

• Identifying investment opportunities: Researches and sources potential investments that align with the fund's strategy.
• Conducting Due diligence: Evaluates financial, legal, operational, and commercial aspects before investing.
• Making investment and Exit decisions: Decides when to invest, hold, or exit to maximize long-term value.
• Managing Portfolio Risk: Monitors investments, diversifies exposure, and manages potential risks.
• Overseeing Portfolio Companies: Works closely with portfolio companies to support growth and value creation, where applicable.
• Ensuring Regulatory Compliance: Ensures the fund operates in accordance with SEBI regulations and the fund's governing documents.
• Communicating with Investors: Provides periodic updates on portfolio performance, fund activities, and key developments.

What SEBI requires from an AIF Fund Manager?

Here's what SEBI requires an individual/entity to follow for becoming an AIF Fund Manager:

• Qualified Investment Team: At least one key investment professional must hold the relevant NISM Series-XIX-C certification prescribed by SEBI.
• Sponsored Commitment: SEBI requires the Sponsor and/or Manager to maintain a continuing interest in the fund, ensuring alignment with investors.
• Minimum Fund Size: Each AIF scheme must have a minimum corpus of ₹20 crore (₹10 crore for Angel Funds).
• Minimum Investment: Investors must commit at least ₹1 crore (₹25 lakh for eligible employees, directors, and angel investors).
• Maximum Investors: An AIF scheme can have up to 1,000 investors (except angel funds i.e., 200 count).
• Mandatory Disclosures: The fund must provide a SEBI-compliant Private Placement Memorandum (PPM) covering strategy, fees, risks, conflicts of interest, and other key details.
• Regular Reporting: AIFs must submit periodic reports and disclosures to SEBI as per the applicable regulatory framework.

7 Factors to Evaluate Before Choosing an AIF Fund Manager

Choosing the right AIF fund manager goes beyond comparing past returns.

Because investors are often irrational and prone to biases like overconfidence and anchoring, even skilled managers operate in a system where stability can quietly build the next crisis (the Minsky cycle).

Here's how investors can evaluate an fund manager before investing in AIF:

1. Track Record

Review the fund manager's performance across different market cycles, not just recent returns.

Look for:

• Consistency across regimes (bull, bear, sideways)
• Evidence of resilience during stress periods
• A realistic success ratio (even successful investors are not right all the time. What matters is whether gains outweigh losses over the long term.)

Avoid managers who rely on a single period of outperformance.

2. Investment Strategy

Understand the fund's philosophy, including how it deals with inefficiencies, behavioural biases, and changing market regimes.

Also assess whether the strategy is "Systematic, Fundamental, or Hybrid" or "Adaptable to regime shifts."

3. Team Experience

Assess the depth, stability, and behavioural resilience of the investment team, in terms of;

• Experience across multiple market cycles
• Ability to remain disciplined even when things turn wrong.
• Evidence of resilience under stress

4. Risk Management

Risk management is not just diversification. It also helps to evaluate how the manager:

• Controls leverage (rather than maximising it)
• Manages liquidity and avoids concentration in illiquid trades
• Prepares for sudden volatile events.

5. Deal Sourcing Capability

Strong managers often generate alpha through change, where opportunities often cluster.

As an investor, look for:

• Access to exclusive investment opportunities through strong industry networks.
• Ability to spot opportunities early, before the broader market recognizes their potential.
• Deep industry research to identify businesses with strong long-term growth potential.

6. Transparency & Reporting

Evaluate how clearly and honestly the AIF fund manager communicates.

• Clear performance reporting, including both gains and losses.
• Transparent communication about challenges and underperforming investments.
• Regular portfolio updates on holdings, risks, and key developments.
• Well-defined valuation and reporting practices that are easy to understand.

7. Governance & Regulatory Compliance

Strong governance helps ensure the fund operates responsibly and in investors' best interests.

Look for:

• Robust internal controls and independent oversight.
• Strong regulatory compliance and risk management practices.
• Clear separation between investment, risk, and operational functions.

Questions to Ask an AIF Fund Manager Before Investing

Before committing your capital, ask these questions to better understand the manager's investment approach, risk management practices, and alignment with investors:

• What is your investment philosophy and strategy?
• How has the fund performed across different market cycles?
• How do you source investment opportunities?
• What is your due diligence process before making an investment?
• How do you identify, measure, and manage portfolio risks?
• How diversified is the portfolio across sectors, companies, and geographies?
• What is the expected investment horizon and exit strategy?
• How often will I receive portfolio updates and performance reports?
• How much capital have the fund manager and sponsor invested alongside investors (GP commitment)?
• What are the key fees and expenses investors should be aware of?
• What happens if a key investment professional leaves the fund?
• How do you handle underperforming investments or unexpected market events?

Bottom Line

For any AIF, the fund you pick and the manager behind it hold the thinking for the next seven to ten years of that capital. That explains the importance of an AIF fund manager.

Hence, like a ritual, read the PPM properly, including the risk disclosures and fee structure. Ask for the fund's compliance record and confirm the SEBI registration number and category.

All things said, an investment decision should come with research, product understanding, and market knowledge as well.