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Kotak’s AIF sees opportunity in real estate sector

KR Srivats KR Srivats New Delhi | Updated on February 15, 2021

Have been putting capital to work to solve the problems of this sector, says MD Sriniwasan

Last week, Kotak Investment Advisors Limited (KIAL), India’s largest Alternate Asset Fund Manager with $4.8 billion of asset under management (AUM), achieved closure of its 11th Real Estate Fund by garnering $380 million from global institutional investors including Sovereign Wealth Fund and Insurance companies.

Businessline spoke to Srini Sriniwasan, Managing Director, KIAL, on his latest fund raise and future plans to grow the AIF business. Excerpts:

KIAL announced of raising $ 380 million real estate focused fund during Covid period. What are the type of investors that have invested in the fund. What has been your experience in raising funds for real estate, when the sector is in doldrums?

The investors are global institutions like insurance companies and Sovereign Wealth Funds and some very large family offices from India. Majority of the investors are global. The real estate sector is challenged, and that’s precisely the opportunity we have to put capital to work for solving the problems. Since 2005, we have done that consistently over several funds, and investors have been very supportive on the basis of our track record.

Your last fund was a real estate equity fund? Why raise a real estate credit fund?

Since 2012, the majority of our real estate funds have been focused on a credit oriented strategy. You are right the last two funds were for Equity in Office as a joint venture with DivyaSree Developers of Bangalore and an affordable housing fund with CDC group. We continue to see opportunity in credit due to the funding squeeze on NBFC and hence this fund raise.

What is the life time of fund? What type of IRR are you expecting?

This is an 8 year fund and we target high teens returns.

Can one expect more real estate funds from you?

Not immediately, we have enough on the plate now.

Budget had sops for infra debt fund. Are you looking at it seriously?

We are discussing an infra fund strategy with some key investors. It’s early days, however, as and when we do a close we will make an announcement.

Which are the areas of interest in infrastructure that you will invest?

Ours is a differentiated strategy. It’s not an IDF as defined by the regulations. It will be an AIF, and will target to solve the knotty problem of providing a bespoke financing solutions across the infra sector.

What are the plans for the stressed assets fund?

We are currently investing from the present $1 billion fund. Deal flow is good and the team is busy on deals. As and when we close we will make appropriate announcements. I am hopeful of putting a significant amount to work by September.

What policy changes can government undertake to improve the market for stressed assets in India?

The move to consolidate the non-performing asset (NPA) in one asset restructuring company (ARC) is a good one. However, the details of this are awaited. Depending upon how they envisage it, I wish that they address the potentially debilitating tax that may be levied on AIFs. If that is not addressed I am afraid this idea will not take off.

What is your view on the ARC model suggested in the budget? Will adding one more ARC solve the problem and give a level playing field to the existing ones?

From the statements coming, we gather that they hope to attract capital from AIFs to solve this.

However, we must remember that AIFs would like to have control over decision making on any loan that they buy. If that is compromised in the structure, it’s a problem. The second is of course tax. Getting both of these right are the key to the success of this bold idea.

Published on February 15, 2021

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