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IIFL Investment Managers to raise $500 million real estate credit fund

IIFL Investment Managers, the wealth and asset management business of IIFL Holdings Ltd, is launching its latest real estate debt fund with a target corpus of almost $500 million, said a senior executive of the firm.

"We are launching a new real estate credit fund that will focus on the affordable housing space. We are launching the fund this week. We are targeting to raise around $500 million for this fund," said Karan Bhagat, managing director and chief executive officer at IIFL Investment Managers.

Given the change in regulations under RERA (Real Estate Regulation and Development Act), which calls for developers to hold more liquidity at the project level, the fund is structured to deliver 50% returns front-end through regular coupon payments and the remaining will be rear-ended, Bhagat said.

The latest real estate-focused fund from the firm will target to deliver a post tax, post expenses return of over 16% to investors, Bhagat added.

IIFL Investment Managers has raised close to Rs.4,700 crore since 2012 across various real estate funds under Sebi's alternative investment fund (AIF) regime.

"The new real estate fund has already received strong anchor investment commitments, including a $25 million commitment from Fairfax and another large commitment from a well-known high net-worth individual (HNI)," said Bhagat.

Canadian billionaire Prem Watsa's Fairfax owns a 35.49% stake in IIFL Holdings Ltd, the parent of IIFL Investment Managers. AIFs have been a big area of focus for IIFL Investment Managers, which across its wealth and asset management businesses manages over Rs.1.33 trillion in assets.

"IIFL Investment Managers' AIFs today have assets under management of approximately Rs20,000 crore," said Bhagat.

A significant contribution to the growth in the assets under management has come from the pre-IPO fund raised by firm, which witnessed heavy demand from investors, given the buoyant IPO market in India. "Earlier this year we raised the pre-IPO fund, which has raised Rs.7,000 crore across six schemes. We have closed subscriptions for the fund. The entire corpus was raised in a span of 4-5 months," said Bhagat.

He added that the fund has already deployed around Rs.2,000-2,500 crore across various investments such as ICICI Lombard General Insurance Co. Ltd, Reliance Nippon Asset Management Co Ltd and National Stock Exchange of India Ltd.

"The inspiration for a pre-IPO fund came from our IIFL Seed Fund, through which we invested in some pre-IPO rounds in companies such as Ujjivan Financial Services Ltd and RBL Bank Ltd," he added.

The firm is planning to soon raise another fund on the private equity side, which will focus on incubating businesses. The proposed fund will see the investment manager take longer term bets as compared to its other funds.

"We are planning to raise a fund through which we plan to invest in creating new businesses along with a professional management, where we will own a majority stake. This fund will have a longer horizon of 8-10 years compared to our other funds, as we will be creating businesses from scratch. We think we would need around Rs.1,500-2,000 crore for this fund and we would seed eight or ten business through it," said Bhagat.

To be sure, there are a few alternative asset classes that the firm wishes to stay away from.

The firm is not keen on doing private credit funds, said Bhagat, as it feels credit funds do not generate the best post-tax returns for investors. The firm also plans to go slow on early-stage venture capital investing for the time being, he added.

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