IL&FS Investment Mangers (IIML) now plans to raise funds of smaller sizes for investments in real estate and infrastructure business.
The oldest Indian private equity firm sees opportunity for itself in fund sizes that are not more than $500 million, targetting 10 to 12 investment opportunities.
Its last real estate fund, IL&FS Realty Fund II, raised a corpus of $895 million in 2008 against the targeted $750 million and made as many as 28 investments. Its last infrastructure fund raised in collaboration with Standard Chartered Bank in the same year was of $658 million.
“Given the time that has taken for every transaction to mature in the last economic cycle, it does not make sense to go beyond $500 that gives you 10 transactions of $50 million," says Archana Hingorani, chief executive officer, IIML. "This is now where the opportunity for us is."
IIML manages assets worth $3.2 billion and it has so far made about hundred exits from over 163 investments. It has delivered a gross internal rate of return of over 22% in US dollar terms. The firm that invests under three verticals of real estate, infrastructure and general corporate is currently fully allocated and is in talks with investors (known as limited partners in industry parlance) for raising fresh funds. Its last general corporate fund, Tara India Fund III raised in 2008 had a size of $225 million.
These limited partners, usually the large pension funds and university endowment funds in the developed markets, have turned cautious now, with the economic cycle getting stagnant for the last 2 to 3 years and depreciation in rupee's value taking away their return. This has made the fund raising tough.
IIML requires about $1.25 billion to make fresh investments across the three verticals it operates in.
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“We have been out wanting to raise capital. There is clearly greater interest than pre-election but there is no momentum that everybody wants to get into India through PE,” says Hingorani. She attributes this to change in investor profiles as limited partners are now looking to invest directly or want do do co-investments to have greater control on returns.
Early this year, Canada Pension Plan Investment Board (CPPIB) teamed up with Oman's State General Reserve Fund (SGRF) to invest Rs 2,000 crore in engineering major Larsen & Toubro's (L&T) infrastructure development arm - L&T Infrastructure Development Projects Limited (L&T IDPL). This was the first foreign pension fund to directly invest in India. This trend is expected to accelerate now.