India’s largest alternative asset manager bets on private debt

India’s largest indigenous alternative investment manager is pushing real estate and distressed assets into private debt, hoping to ride the wave of investments from private equity and pension funds in the booming economy.

Mumbai-based Kotak is the largest Indian player in the country’s nascent alternative asset management industry. After making a name for itself in real estate funds, it now sees some great opportunities in direct lending to companies.

“The nature of the opportunities now is going to be more M&A, growth-oriented financing,” said Srini Srinivasan, managing director, Kotak Investment Advisors, an arm of Kotak Mahindra Bank.

Srinivasan said there are also significant opportunities in buying Indian commercial real estate. While “the rest of the world finds office and retail unattractive,” he said, “India is just the opposite.”

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

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

Srinivasan said Kotak’s second distressed asset fund has secured $1.25bn, with investments from Singapore and Abu Dhabi sovereign wealth funds GIC and ADIA, but is targeting a total of $1.6bn. The company’s first distressed asset fund launched in 2019 has given 20% returns since launch.

Kotak has also raised a dedicated $500 million fund to invest in data centres, which it expects to generate 25 per cent returns, but market volatility and falling valuations of technology companies have stalled plans to raise start-up funds. has stopped.

Within India’s alternative asset management sector, “private lending has seen the biggest boom”, said Rajat Tandon, president of the Indian Venture and Alternative Capital Association.

“For investors, equity valuations have fallen, and for companies, the cost of borrowing from banks has become very high. Private loans are a good middle of the road for both.

“And in India especially, traditional lenders are wary after various bad loan shocks, and non-banking financial institutions are still reeling from their liquidity crisis,” Tandon said. “So the private credit guys are seizing this opportunity to capture that gap.”

Srinivasan’s comments come at a time when global groups are building pressure on India. Canada Pension Plan Investment Board opened its Mumbai office in 2015. Its most recent bet in India includes a $205 million investment in industrial property and warehousing developer IndoSpace’s latest real estate fund.

Meanwhile, global investor Brookfield recently invested over $1 billion in Indian renewable energy group Avada to finance its green hydrogen and green ammonia ventures.

In 2022, private debt investment was to account for 12 per cent of India’s total private equity and venture capital investment of $56bn, up from 3 per cent in 2021, according to Ernst & Young data presented by IVCA.

Kotak’s growth comes after a series of foreign companies spun off distressed asset funds in the country.

“When we raised the first (special circumstances) fund (in 2019), Apollo was really packing up its special circumstances fund,” Srinivasan said. “Lone Star was closing. And WL Ross packed up a few years before that.

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

The new legal framework allowed creditors to initiate bankruptcy proceedings against defaulting companies and to overthrow company boards to pave the way for sale of distressed assets.

Srinivasan said, “To be successful in India, you have to keep your feet on the ground.” “It is not a market that you try and operate through suitcase bankers coming out of Hong Kong and Singapore. It may be a good lifestyle for them, but it is not going to generate returns.”

India’s largest indigenous alternative investment manager is pushing real estate and distressed assets into private debt, hoping to ride the wave of investments from private equity and pension funds in the booming economy.

Mumbai-based Kotak is the largest Indian player in the country’s nascent alternative asset management industry. After making a name for itself in real estate funds, it now sees some great opportunities in direct lending to companies.

“The nature of the opportunities now is going to be more M&A, growth-oriented financing,” said Srini Srinivasan, managing director, Kotak Investment Advisors, an arm of Kotak Mahindra Bank.

Srinivasan said there are also significant opportunities in buying Indian commercial real estate. While “the rest of the world finds office and retail unattractive,” he said, “India is just the opposite.”

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

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

Srinivasan said Kotak’s second distressed asset fund has secured $1.25bn, with investments from Singapore and Abu Dhabi sovereign wealth funds GIC and ADIA, but is targeting a total of $1.6bn. The company’s first distressed asset fund launched in 2019 has given 20% returns since launch.

Kotak has also raised a dedicated $500 million fund to invest in data centres, which it expects to generate 25 per cent returns, but market volatility and falling valuations of technology companies have stalled plans to raise start-up funds. has stopped.

Within India’s alternative asset management sector, “private lending has seen the biggest boom”, said Rajat Tandon, president of the Indian Venture and Alternative Capital Association.

“For investors, equity valuations have fallen, and for companies, the cost of borrowing from banks has become very high. Private loans are a good middle of the road for both.

“And in India especially, traditional lenders are wary after various bad loan shocks, and non-banking financial institutions are still reeling from their liquidity crisis,” Tandon said. “So the private credit guys are seizing this opportunity to capture that gap.”

Srinivasan’s comments come at a time when global groups are building pressure on India. Canada Pension Plan Investment Board opened its Mumbai office in 2015. Its most recent bet in India includes a $205 million investment in industrial property and warehousing developer IndoSpace’s latest real estate fund.

Meanwhile, global investor Brookfield recently invested over $1 billion in Indian renewable energy group Avada to finance its green hydrogen and green ammonia ventures.

In 2022, private debt investment was to account for 12 per cent of India’s total private equity and venture capital investment of $56bn, up from 3 per cent in 2021, according to Ernst & Young data presented by IVCA.

Kotak’s growth comes after a series of foreign companies spun off distressed asset funds in the country.

“When we raised the first (special circumstances) fund (in 2019), Apollo was really packing up its special circumstances fund,” Srinivasan said. “Lone Star was closing. And WL Ross packed up a few years before that.

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

The new legal framework allowed creditors to initiate bankruptcy proceedings against defaulting companies and to overthrow company boards to pave the way for sale of distressed assets.

Srinivasan said, “To be successful in India, you have to keep your feet on the ground.” “It is not a market that you try and operate through suitcase bankers coming out of Hong Kong and Singapore. It may be a good lifestyle for them, but it is not going to generate returns.”