That’s a ridiculously low threshold for a buyer-beware product free to invest in unlisted securities. Whether potential IPO candidates, young startups, distressed assets, commodities or builder debt, alternative investment funds take complex, risky bets.
An economy growing at its slowest pace in five years isn’t exactly a cornucopia of easy money. Truly wealthy individuals, who have the stomach for venture capital, private equity or hedge fund-type opportunities outside of public markets, have trained investment staff who can evaluate exotic funds for their family offices. Instead, these private pools are being hawked to the middle class as get-rich-quick schemes. Relationship managers at banks are pushing them even to unwitting octogenarians who just need vanilla tax-free bonds to generate a regular income. Stories of sharp practices and broken promises are beginning to swirl, and conversations with industry sources suggest there’s more trouble ahead.
After inflicting embarrassing losses on mom-and-pop investors, India’s mutual funds are cutting back their exposure to debt securities of shadow financiers. However, for the borrowers it means finding other options for as much as $19 billion in funding that must be repaid in the current quarter. The cost of their desperation nowadays is often a “side letter” – a payment they make on top of the agreed debt coupon. No wonder the fees for distributors are so juicy.
It’s time the market regulator woke up because there’s every risk that middle-class investors will end up being hurt. They’re picking up nickels in front of a steamroller. With unsold housing inventory at an all-time high of almost 1.3 million homes across 30 cities, and developers needing twice as much operating profit as they’re currently making just to service their debt, shifting the problem to unsuspecting retirees is really no solution to India’s funding crunch.
(1) In Singapore, an individual needs net personal assets of S$2 million ($1.46 million) to qualify as an "accredited investor."