Alternative Investment

Kotak’s alternative asset arm floats Rs 1,500 cr fund to invest in other PEs, VCs

Kotak’s alternative asset arm floats Rs 1,500 cr fund to invest in other PEs, VCs

Credit: 123RF.com

Kotak Investment Advisors Limited (KIAL), on Tuesday announced the launch of its “Fund of Funds (FoF)” to invest in other private equity (PE), venture capital (VC) funds coupled with direct investments into companies.   

The Kotak India Alternate Allocation Fund targets to raise a corpus of Rs 1,500 crore, including a greenshoe option of Rs 750 crore,” said a statement by KIAL, the alternative asset unit of Kotak Mahindra Group. The first close of the fund is likely by the end of September. 

With a minimum investment ranging between $5-15 million, the fund’s objective is to diversify across PE/VC funds in multiple sectors, including consumer, technology, healthcare, financials, etc, as well as across multiple stages – including early, growth and late-stage investments.  

Kotak India Alternate Allocation Fund is set up as an alternative investment fund (AIF) to be managed by KIAL, whose overall existing investments are spread across different asset classes including private equity funds, real estate funds, infrastructure funds, special situations fund, listed strategies and investment advisory.  

A Fund of Fund is a pooled investment fund that collects money from investors and deploys it into other types of funds.  

Kotak added that the Fund of Fund also intends to invest some portion into co-investment opportunities available from such investee funds.  

“Through Kotak’s Fund of Funds we intend to provide investors access multiple funds as well as leverage our institutional diligence with peer benchmarking data available, coupled with institutional monitoring of long tenure funds…The performance difference between best and worst fund managers in PE/VC funds can be as high as 15- 20% IRR (internal rate of returns),” said Nidhi Chawla, Fund Manager, Kotak India Alternate Allocation Fund.  

Diversification of risk across fund managers is tough due to high minimum investment requirements, Chawla added.  

In May last year, markets regulator SEBI had eased investment norms allowing Indian Fund of Funds backing PE or VC funds to invest up to 25% of corpus in one portfolio company either directly or through another fund. The limit is applicable to Fund of Funds that fall under the Category I and Category II AIF regimes. Category I refers to social impact funds, venture capital funds and infrastructure funds, while Category II refers to private equity and private debt funds.

Presently, India has Fund of Funds set up by National Investment and Infrastructure Fund (NIIF) and Small Industries Development Bank of India (SIDBI). In the Union Budget early this year, the finance minister also proposed setting up blended capital thematic funds in the ‘sunrise’ sectors of climate action, agriculture and deep technology sectors.

“Indian alternate ecosystem has become vibrant with PE/VC fund managers delivering consistent returns and outperformance over public benchmarks. But many of the marquee fund managers have been inaccessible to domestic investors as they raised only offshore capital or had high minimum ticket investment requirements. With Kotak’s Fund of Funds, we intend to enable access to such funds and increase domestic overall participation in the Indian alternates industry,” said Srini Sriniwasan, managing director at KIAL said. 

Billionaire Uday Kotak-controlled Kotak Group’s alternative investment firm was set up in 2005 and is among the largest homegrown private investment firms in the country with total assets under management of $5.7 billion across all asset classes.  

KIAL is also in the process of raising its second Strategic Situation fund with a corpus of $650-1 billion by October. In May, it had announced plans to launch a Rs 1,000-crore private credit fund. 

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