On 4 January, state-backed tourism finance-advisory firm Tourism Finance Corporation of India said it would anchor a new alternative investment fund (AIF) focused on hospitality.

A day later, Sundaram Alternates, the alternative-investment arm of Sundaram Finance Group, said it had secured Rs 1,000 crore in commitments for another alternative fund.

On 6 January, financial-services provider Ashika Investment Managers joined in by launching its own AIF.

Three launches in three days are definitely not coincidences. It’s indicative of the appetite in the Indian alternative-investment space, building for over a decade.

Regulated by the Securities and Exchange Board of India (Sebi), these privately pooled investment vehicles raise money from uber-rich investors to invest in assets beyond listed equities. Think private companies, real estate, derivatives, and the like.

From about 160 AIFs in 2015, with less than Rs 28,000 crore in commitments, they’ve grown to over 1,740 in number as of January, spread across three categories and with nearly Rs 15 lakh crore in committed capital, according to Sebi.

S, a 32-year-old wealth manager from Mumbai, knows the space well. On a typical workday, he reaches out to at least a dozen different potential high-net-worth clients, pitching them the pros of AIFs. To invest in such funds, all that his clients have to do is part with at least Rs 1 crore.

Within these funds, S, who didn’t want to be identified by his name, saw investors’ interest tilting towards a particular segment. Category-II funds, which include private-credit, real-estate, venture-debt, and private-equity funds, had become the default recommendation. In fact, more than half the registered AIFs fall under category-II.

As one fund manager put it, “category-II is everything that category-I and -III are not.” They promise 20–25% returns, well above mutual funds, without the risk of dealing with early-stage startups like category-I funds.

But the industry’s boom is running into some serious obstacles.

For one, private credit, one of category-II funds’ biggest growth engines, is beginning to slowThe KenRBI to banks: it’s time to rain on private credit’s parade.