PMS Investment Shows Mixed Signals as Interest in Unlisted Equity Rises While Flows Slow Down

The Portfolio Management Services industry showed mixed trends in September 2025. Investor inflows slowed down, even as PMS investment managers were simultaneously adding more exposure to pre-IPO and unlisted opportunities. Data from the APMI Compendium indicates that while fresh money entering PMS accounts dropped sharply, discretionary portfolios shifted more towards private-market deals, suggesting a search for returns outside the listed universe.

Unlisted Exposure Jumps 63% Month-on-Month

The strongest indicator of this shift came from the rise in unlisted equity allocations. Discretionary PMS portfolios increased exposure to unlisted holdings by 63% month-on-month, the biggest change within the equity mix. Although unlisted positions still form a relatively small part of total AUM, the jump reflects growing interest in companies approaching the public market.

Co-investment strategies, often used for concentrated pre-IPO positions, showed a similar tilt. Co-investment AUM inched up 3% for the month, driven by a 7% rise in unlisted equity allocations. People tracking the space say HNI cautious investing is leading investors to favour deals that feel exclusive and early-stage, especially with listed market valuations remaining on the higher side.

SEBI Restrictions Push Demand Toward PMS and AIFs

Part of this movement is linked to the regulatory environment. SEBI recently clarified that mutual funds cannot participate in pre-IPO placements, since schemes are restricted to securities that are listed or set to be listed. As pre-IPO placements do not fall under the “to-be-listed” definition, mutual funds have effectively been shut out of the space.

Regulators describe the move as a safeguard for retail investors. However, fund houses argue that it removes a rare source of alpha that could have been shared with ordinary savers. Unlike anchor allotments, pre-IPO allocations do not offer discounted pricing, but they do provide assured quantity, which is a feature investors value in crowded offerings. With mutual funds now limited to anchor and institutional buckets in IPOs, PMS providers and AIFs face less competition for pre-listing positions. The backdrop is favourable, with strong subscription levels, upbeat listings and an expanding pipeline that includes both new-age and traditional manufacturing companies.

Net Flows Fall 92% in One of the Steepest Monthly Drops

While interest in pre-IPO exposure climbed, overall sentiment toward PMS investing weakened. Net inflows fell 92% month-on-month to ₹1,139 crore in September, down sharply from ₹14,789 crore in August. It was one of the steepest monthly declines recorded in FY26.

Despite the slowdown, total PMS AUM touched a new high. The rise, however, came largely from mark-to-market gains rather than new allocations. Analysts estimate that a 5 to 6% increase in benchmark valuations was enough to lift reported AUM even as fresh money pulled back.

EPFO Allocations Mask Retreat from HNIs

Gross inflows of ₹30,351 crore were bolstered heavily by EPFO-linked mandates, which accounted for ₹8,449 crore, or 28% of the total. PF and EPFO assets rose 2%, adding ₹54,700 crore during the month. In contrast, non-PF and EPFO assets fell 1.9%, reducing nearly ₹21,000 crore. The data suggests that without mandatory institutional flows, the decline in high-net-worth participation would have appeared even sharper.

Discretionary PMS Sees the Most Pressure

Discretionary PMS, generally viewed as the clearest reflection of HNI confidence, saw the sharpest pullback. Inflows dropped from ₹33,730 crore to ₹19,290 crore, while redemptions rose to ₹16,500 crore, resulting in the largest discretionary outflow of FY26. Market observers attribute this to rising volatility, stretched valuations and profit-booking after a strong market run.

Segment Trends Point to Caution

Corporate PMS AUM fell 6% in September, a sharper decline than is typically seen in what is usually a steady category. Non-resident AUM, which had slipped in August, rose 3% and helped cushion part of the weakness. The biggest pullback came from derivatives, where AUM dropped 25.6% over the month. Equity AUM, on the other hand, was up 2.5%, though managers acknowledge that most of this increase came from market gains rather than fresh investment activity. Mutual fund-linked allocations increased 2.8%, while plain debt allocations saw a modest 0.6% rise.

Client Additions Slow from Earlier Pace

PMS providers added 3,490 new client accounts in September, taking the total to 2.1 lakh. However, monthly additions slowed compared to earlier periods. Discretionary client numbers are up 15% year-on-year, but momentum has eased. Advisory client numbers declined 15% year-on-year. Wealth managers cite capital reallocation, overseas diversification and valuation fatigue as reasons for the slowdown.

A Sector at a Turning Point

Overall, the data shows the PMS industry moving in two directions at once. On one hand, investors are showing a greater appetite for unlisted and pre-IPO exposure as a way to capture returns before companies reach the public market. On the other hand, the broader base of PMS investors appears more cautious, reducing allocations to listed equities and taking profits where available.

Whether the rise in unlisted exposure becomes a longer-term shift will depend largely on how the primary market unfolds in the coming months. With December expected to be among the busiest IPO periods in recent years, managers believe the window for pre-IPO positioning may remain open even as flow numbers signal restraint.

Source: MoneyControl

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