Investments into alternate investment funds (AIFs) which are classified as category II players — mostly private equity and debt funds — have risen steeply from Rs 7,591 crore at the end of June 2015, to Rs 16,735 crore at the end of June 2016, data from Securities and Exchange Board of India (Sebi) shows.
The spurt has come in the wake of the government’s decision to give tax pass through status to two categories of AIFs.
Commitments to raise money via AIFs increased by nearly Rs 20,000 crore, from Rs 13,909 crore, at the end of June 2015, Rs 32,697 crore in June 2016.
AIFs are grouped under three categories based on their investment structures and risk profiles. In Feb 2015, the government announced it would be a tax pass-through status to categories I and II, implying capital gains will be taxed in the hands of investors and not the funds. Siddharth Parekh, partner, Paragon Partners, points out the money has come in at a time when the macroeconomic environment is positive.
“The fund life of vintage funds that had invested in the 2006 — 2007 period has ended and we are at the beginning of a new cycle with projections looking much better,” Parekh said. He added there were more opportunities arising from the numerous technology- based entrepreneurial ventures, specifically those related to the e-commerce segment.” Venture capital firms are raising corpuses to invest in some of these opportunities at an early stage, “ Parekh added. Paragon Partners is a Mumbai- based growth fund that invests in the manufacturing, financial and infrastructure services sectors.
Fund managers are agreed that with the government clarifying its stance on the tax structure for AIFs it has become easier to raise funds. One of the major sectors that AIFs lend to is real estate. Nearly 40% of the over 200 funds registered on the Sebi website are dedicated real estate funds, a cursory survey of the list of AIFs on the Sebi website revealed.
There are more that are diversified, with a significant real estate portfolio, debt, distressed assets, troubled asset revival funds etc. These funds also have real estate exposure. Some of the more prominent companies that have raised real estate funds in this time period include HDFC, Edelweiss, Kotak, KKR India, Indostar, IDFC, Aditya Birla Group, ASK and Indiabulls.
Banks tightening their lending to the industry all throughout last year increased opportunities for both AIFs and non banking financial companies (NBFCs), said Ritesh Vora, partner of real estate investments at IDFC. Funds can be more flexible in financial structuring than NBFCs, Vora added. Other sector experts said, corpus sizes of funds that are real estate focused are typically between Rs 500 crore and Rs 1400 crore; per project, deployment range between Rs 80 crore and Rs 100 crore, diversifying risk for investors at a time when the residential industry is going through a major crisis.
The surge in category II AIF funds is also against a low base of Rs 7591 crore of actual fund raising, Vora pointed out. Market experts expressed doubt whether such a run rate can be maintained on a year on year basis, even though a growth is imminent. Currently there are 219 funds that are registered on the Sebi website.