Bengaluru: Indiabulls Alternative Investments Ltd plans to raise as much as Rs.1,000 crore for a new fund from non-resident Indian (NRI) investors based in West Asia, Asia-Pacific and Europe.
India Opportunities Fund, a real estate-focused, alternative investment fund (AIF), allows NRI investors, along with persons of Indian origin (PIOs) and other foreign investors, to participate in domestic real estate investments.
It plans to initially raise Rs.500 crore and raise an additionalRs.500 crore in case of higher-than-expected demand.
The fund has a tenure of four years, extendable by a year.
Indiabulls Alternative Investments is both sponsor and manager of the fund.
A November Reserve Bank of India (RBI) notification eased norms pertaining to foreign investments in domestic funds established as trusts.
Subject to the fulfilment of certain conditions, foreign investments in AIFs, real estate investment trusts (REIT) and infrastructure investment trusts (InvITs) registered with the Securities and Exchange Board of India (Sebi) would be permitted under the automatic route without subjecting the investment vehicles to restrictions under the foreign direct investment (FDI) policy, the notification said.
“India Opportunities Fund allows NRIs and other foreign investors to participate in domestic real estate investments managed by professional fund managers, thereby avoiding the risks, pitfalls and paperwork that comes along with direct real estate investments. The fund also targets significantly higher risk-adjusted returns, as compared with most investment products in the country of residence for these investors,” said Akshay Gupta, group executive head and chief executive officer, Indiabulls Asset Management.
The investment theme of the new fund will be the same as the other real estate funds managed by Indiabulls, which is primarily debt and structured debt investments in under-construction residential projects across top property markets.
“There is a large base of foreign investors, both NRI and institutional, who are keen to invest in Indian real estate but would prefer to invest indirectly using a professional fund manager, thereby avoiding the exposure, risk, paperwork and asset management issues. Also, from a market cycle perspective, given the recent developments in demand and supply, it is an opportune time to enter or invest in residential real estate, where prices are expected to appreciate over the next three-to-five years,” said Ambar Maheshwari, chief executive-private equity, Indiabulls Asset Management.
Indiabulls Asset Management Co. Ltd, a unit of Indiabulls Housing Finance Ltd, is currently raising its second fund—Indiabulls High Yield Fund—that aims to raise up to Rs.1,000 crore from domestic investors to invest in residential projects in key property markets.
Indiabulls ventured into the real estate private equity business in February 2015, when it launched its Indiabulls Real Estate Fund, a Rs.500-crore pure-debt fund, with a Rs.100 crore greenshoe option.
Other private equity firms, including IDFC Alternatives Ltd, are also trying to raise funds from NRIs.
IDFC Alternatives is currently raising a Rs.750-crore fund.
“It’s a new avenue to raise capital. We have incorporated NRI participation in our new domestic fund after the RBI (Reserve Bank of India) notification came in. The response has been okay and we expect about 10-20% of the fund to come in from NRIs,” said Ritesh Vohra, partner, real estate, at IDFC Alternatives.
Raising funds from overseas retail investors is, however, not without its challenges.
“While this opens up a wider window in terms of an investor base, there are two challenges. First, the fund manager needs to have a deep distribution network to access a foreign retail investor base, which is also an expensive affair, and, second, investors will also need to take the exchange risk keeping in mind the rupee depreciation factor,” said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India