PE firms cut corpus of realty funds

PE firms cut corpus of realty funds

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Mumbai: Due to a tightening of global liquidity markets, private equity fund raising for the real estate and infrastructure sectors has become difficult with many funds expected to extend their closures or reduce the target corpus. People in the industry say that the churn in the global equity markets has made investors wary of even private equity funds, although the two markets are in different categories with different quantum of risks, reported The Economic Times.

"The situation has turned different and fund raising has tightened. So, the targeted amount in many cases may have to be scaled down," admits a senior executive with a UK based private equity firm.

India has recently seen a number of fund announcements. Pharma tycoon Ajay Piramal plans to raise $800 million from the international market for his recently-promoted real estate fund, while IL&FS is in the market for a $500 million infrastructure fund. Private equity firm Actis plans to raise $100 million, Mumbai based investment banking firm Keynote is planning a $100 million off-shore PE fund.

"Investors or limited partners are discouraged by the global credit and liquidity crises. The risks associated with private equity investments are high as an investor can lose all his investment if the fund invests in failing companies. Investors typically invest in a specific fund managed by a firm, rather than the firm itself," said a partner with another private equity firm.

People close to placement agencies say that current trends indicate that funds could close with lesser corpus due to lower interests from limited partners. Placement agents usually approach potential investors and have a direct pulse on the mood of the investing community. More investors will mean higher fees for the placement agencies who charge a fee of around 1 percent of the commitments that they collect.

Even though, some investors feel this is the right time to launch a large-sized fund because banks and institutions tightened lending norms to the real estate sector and developers need funds to complete their project.

According to sources, 3i, a common investor in all India-focused real estate investment trust (REIT) funds, has so far committed $250 million. Actis is another PE firm, which is upbeat about the fund raising. "There is a huge potential for homes for middle class people who are willing to pay between Rs 50 lakh and Rs 80 lakh for residential apartments," said Chanakya Chakravarti, head of Actis Real Estate Fund. Actis plans to launch a $100 million real estate fund to tap developers who are building homes for the growing middle class.
Source: IANS
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