Tata Capital Growth Fund, which raised $240 million in its first fund in 2011, plans to hit the road again in 2016, this time for $350 million.
Tata Capital Growth Fund is a private equity (PE) unit of Tata Capital Ltd, which manages funds worth nearly $1 billion. Including Tata Capital Growth Fund’s $350 million, various PE and venture capital (VC) arms of Tata Capital plan to launch fund-raising for a collective $1 billion in 2016.
“We will shortly launch our fund-raising programme and we believe 2016 is a spectacular year for raising capital,” said Akhil Awasthi, managing partner at Tata Capital Growth Fund. “We have returned nearly 70% of the capital to our investors from our first fund.”
The fund-raising will be launched in the first half of 2016, and Awasthi expects to raise $200 million to mark the first close by middle of next year. Once a fund reaches its first close, it can start investing.
“In this fund, we also have the option for limited partners (LPs) to co-invest with us and we are expecting returns of 22-27%, similar as our last fund.” Awasthi said. LPs are investors in a PE fund.
The second fund comes at a time when 70% of Tata Capital Growth Fund’s maiden fund of $240 million has been invested across nine new deals and three follow-on investments in portfolio firms. At present, the fund typically does deals in the $10-25 million range. From the second fund, slightly larger deals of $15-35 million may be pursued.
Tata Capital Growth Fund is likely to partner Japan’s Mizuho Securities Pvt. Ltd, with whom it had tied up for its first fund. The partnership will also provide Tata Capital Growth Fund an advantage while doing deals involving Indian and Japanese companies.
Tata Capital Growth Fund focuses on investing in manufacturing, strategic services and urbanization. Its last investment was closed on 30 July when it acquired a stake in electric motor maker Agile Electric Sub Assembly Pvt. Ltd for an undisclosed amount.
Some of Tata Capital Growth Fund’s other investments include Tata Technologies Ltd, Star Health and Allied Insurance Ltd, Janalakshmi Financial Services Pvt. Ltd, Home First Finance Co., Standard Greases and Specialities Pvt. Ltd and Nearex Pte Ltd.
Apart from investing the rest of its capital from the first fund, Tata Capital Growth Fund is seeking to exit one more investment before it starts its next fund-raising programme.
Tata Capital is planning to raise funds for most of its PE businesses next year.
Tata Opportunities Fund, a third-party PE fund investing in select Tata group companies and other firms, is looking to raise nearly $600 million next year, Mint reported on 26 August.
A healthcare fund from the Tata Capital stable is also seeking to launch its second fund next year of over $75 million. The exact amount is not yet decided but Visalakshi Chandramouli, a partner at Tata Capital Healthcare Fund, said in an interview on 3 November that it plans to launch the fund in the next six-eight months.
Apart from Tata Capital, which seeks to tap both domestic and offshore investors for its funds, other local funds expected to hit the road to raise capital include Tano Capital, Aditya Birla Private Equity, ChrysCapital Investment Advisors and IDFC Alternatives Ltd.
Funds that have already raised capital this year include Multiples Alternate Asset Management Pvt. Ltd, India Value Fund Advisors and the Everstone Group.
Three large PE firms have collectively raised close to $2 billion in 2015. According to data from Preqin, during 2014, six funds raised $1.1 billion against $1.7 billion mopped up by 10 PE funds in 2013. Since 2006, PE funds have raised $17.8 billion.
There are two aspects to the fund-raising story, according to Mayank Rastogi, a partner for PE and transaction advisory at consultancy firm EY. “Firstly, a number of funds are towards the end of their earlier funds and hence are following the natural cycle for fund raising. A number of India-focused funds raised during the 2008-11 period have come towards the end of their investment lifecycle and require fresh capital for investments. Second, to some extent, it is market-driven and given the India attractiveness presently, a few funds have also advanced their fund-raising plans,” Rastogi said.
Rastogi added that LPs are reasonably keen on India and it is also reflected in larger LPs seeking co-investment options and encouraging funds to consider larger deals.
Still, LPs remain selective in which funds they commit capital to.
“Some of the fund managers who have not been able to return capital or have seen churn in their management team are finding it difficult to raise capital,” an LP said on condition of anonymity. “Also, it is not an easy market to raise capital and LPs are still not happy with the kind of returns these PE-backed IPOs (initial public offers) have garnered.”
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