IFMR Investment Managers Pvt Ltd, a Chennai-based asset management company, is raising a Rs.250 crore (about $38 million) debt fund to invest in businesses that target consumers at the bottom half of the pyramid, such as firms that finance affordable housing or agri-business.
The fund has already garnered Rs.165 crore from six institutional investors, including Birla Sun Life Insurance and Kotak Mahindra Old Mutual Life Insurance. Fund-raising is expected to be completed in March.
Called the IFMR FImpact Long Term Multi Asset Class Fund, it is registered with the Securities and Exchange Board of India (Sebi) as a so-called category II alternative investment fund (AIF). Sebi categorises AIFs under different categories. Debt funds are categorized under category II.
This is the second fund from IFMR, which in 2014 created a Rs.100 crore fund to lend exclusively to the microfinance sector. It has so far made eight investments.
IFMR decided to float a new fund to broaden its mandate to the overall financial inclusion sector. Apart from microfinance, target sectors include affordable housing finance, agri-business finance, small business loans and vehicle finance.
Under the AIF structure, the fund will have a six-year term in which it will make investments and return profits to investors. The fund has already invested aboutRs.70 crore in three companies and will make a total of 10-12 investments over its term.
“The AIF structure offers a couple of benefits. One, it provides for stronger investor rights, which is important given the risk involved in such investments. Two, such funds are eligible for the tax pass-through currently available to Sebi-registered AIFs,” IFMR Investments chief executive Vineet Sukumar said in an interview. The fund is targeting a return in the range if of 13-13.5% from the investments that it will make.
IFMR Investment is one of only two lenders in the country that have chosen the AIF route to launch debt funds for relatively young and unlisted companies. The other such lender is Delhi-based Trifecta Capital, founded by former Canaan Partners’ managing director Rahul Khanna and former Accenture senior executive Nilesh Kothari.
Trifecta is currently raising its first fund, with a target corpus of Rs.400 crore, and signed on RBL Bank as an anchor investor last year. Unlike Trifecta, however, IFMR doesn’t target firms backed by venture capital funds.
“We’re not a venture debt fund. We lend to established companies that have been cash flow positive for some time,” said Sukumar. The fund’s investment ticket sizes would range between Rs.15 crore to Rs.25 crore.
To further mitigate risk, the fund will also target companies with which it has had an ongoing relationship through its parent IFMR Capital, the Chennai-based non-banking financial company that serves the financial inclusion sector. Incidentally, about 10% of the Rs.250 crore corpus is being brought in by IFMR Capital.
Such factors have played a key role in encouraging institutions such as Birla Sun Life Insurance and Kotak Old Mutual Life Insurance to invest in the fund.
“Specialists (such as IFMR) understand the risk profile of these companies and how direct lending can be managed much better,” said Sashi Krishnan, chief investment officer of Birla Sun Life Insurance.
Also, investing in funds such as IFMR’s allows insurers to indirectly invest in areas they cannot because of regulatory norms.