Real estate-focused private equity (PE) funds have managed to raise just a fraction of a targeted $3 billion in overseas money over the one past year. Given how vintage funds that put money to work between 2005 and 2008 burnt their fingers, investors have turned risk averse. Moreover, a large number of players are not too sure the value of the rupee will hold.
While IDFC Alternatives and Indiabulls have put their plans on hold, others like ASK have downsized their issues, raising only part of what was originally envisaged. Piramal Fund Management, for instance, pruned the size of its overseas fund offering, according to VCCEdge, to $150 million from the initial target of $500 million. Motilal Oswal, IDFC, Milestone and Indiabulls have focused on raising money locally.
Just about a handful of top real estate funds are willing to bet on India at this point, say industry experts. A large number of sovereign, wealth and pension funds, a big part of the PE investment community, are not so keen to do so.
After an initial engagement with potential investors, therefore, fund managers have thought best to wait for a more opportune time. Prakash Kalothia, managing director at Sun Area Real Estate, points out there is little reason to invest in an emerging market, with its given currency risk when comparable returns can be earned from assets in the US.
While some large players like Blackstone, CPPIB, GIC, QIA and APG are investing large sums in income generating assets, they’re also equally keen on forging direct partnerships with developers.
But most limited partners are still watching from the sidelines. Ritesh Vohra, partner at IDFC Alternatives, said globally the resources pool has shrunk with almost no bank and very few insurance companies participating. IDFC raised a domestic fund and said it will revisit plans for an overseas one at a later date.
Meanwhile, the ASK Group raised about $85 million offshore against a target of $200 million. Amit Bhagat, managing director, said while not dismissing India investors, said they are ultra selective and follow a rigorous due diligence process. HDFC Property Fund is among the few that has managed to raise an international corpus. Funds with a proven track record are doing better as seen from HDFC’s $500-million rise. Two other companies that have raised corpuses are Hines and Kotak but both the funds are bankrolled mainly by one single investor, ADIA, people in the know said.
Instances of “co-mingled” funds — corpuses in which no partner contributes more than 10% — are now rare. Instead, a large number of “managed accounts” are being raised, wherein one or two major investors are expected to contribute as much as 30% of the corpus. These investors have a say in every investment made. According to fund managers, it is now almost mandatory for one of these heavyweight investors to anchor the issue but such investors too are few and far between.