India’s largest alternative asset manager is betting on private credit

Featured Sponsor

Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

India’s largest homegrown alternative investment manager is moving beyond the real estate sector and distressed businesses into private credit, hoping to anticipate a surge in private equity investment and pension funds in the fast-growing economy.

Mumbai-based Kotak is India’s largest player in the country’s fledgling alternative wealth management sector. Having established herself in real estate funds, she now sees some of the best opportunities lending directly to companies.

“The nature of the opportunities now will be more M&A, growth-oriented financing,” said Srini Sriniwasan, chief executive officer of Kotak Investment Advisors, an arm of Kotak Mahindra Bank that manages $8.8 billion of assets.

Sriniwasan added that there are also significant opportunities in buying Indian spots real estate. While “the rest of the world finds offices and retail unattractive,” she said, “India is the complete opposite.”

Alternative investments include a broad range of assets including private equity, private debt, infrastructure, real estate, venture capital, growth capital and natural resources.

As demand for distressed assets increases in India, Sriniwasan said alternative asset managers may also find opportunities in acquisition financing, an area where Indian banks and insurers are not active.

Sriniwasan said Kotak’s second fund of distressed assets, with investments from Singapore and Abu Dhabi’s GIC and ADIA sovereign wealth funds, has secured $1.25 billion, but is targeting $1.6 billion in total. The company’s first distressed assets fund, launched in 2019, has returned 20% since inception.

Kotak has also raised a $500 million fund dedicated to investing in data centers, which it hopes will generate a 25% return, but has put on hold plans to raise a seed fund due to market volatility and valuations in the future. decline for technology companies.

Within the Indian alternative asset management sector, “private credit has seen the biggest jump,” said Rajat Tandon, president of the Indian Venture and Alternate Capital Association.

“For investors, equity valuations have fallen and for companies the cost of borrowing from banks has become extremely high. Private credit is a good middle ground for both.

“And in India especially, traditional lenders are wary after various bad loan shocks and non-bank financial institutions are still recovering from the liquidity crunch,” Tandon added. “So the private credit guys are taking this opportunity to close that gap.”

Sriniwasan’s comments come as global groups are pushing into India. The Canada Pension Plan Investment Board opened its Mumbai office in 2015. Its most recent bets in India include a $205 million investment in industrial property and warehouse developer IndoSpace’s new real estate fund.

Meanwhile, global investor Brookfield recently invested more than $1 billion in Indian renewable energy group Avaada to fund its green hydrogen and green ammonia ventures.

In 2022, private credit investment accounted for 12 percent of India’s total $56 billion of private equity and venture capital investment, up from 3 percent in 2021, according to Ernst & Young data presented by IVCA.

Kotak’s growth comes after a string of foreign companies liquidated funds from troubled businesses in the country.

“When we raised the first [special situations] finance [in 2019] Apollo was actually packing up their special situations fund,” Sriniwasan said. “Lone Star was closing down. And WL Ross had just packed his bags a couple years earlier.

Some of the companies “were too early in the game,” Sriniwasan said, adding that the benefits of India’s 2016 bankruptcy code took time to emerge.

The new legal framework has allowed creditors to initiate insolvency proceedings against defaulting companies and courts to overthrow company boards, paving the way for distressed assets to be sold.

“To be successful in India you have to be down to earth,” Sriniwasan added. “This is not a market where you try to operate through what I call suitcase bankers from Hong Kong and Singapore. It might be a nice lifestyle for them, but it’s not going to generate returns.”