India’s largest homegrown alternative investment manager is moving beyond real estate and distressed assets into private credit, hoping to jumpstart the wave of investment from private equity and pension funds in the fast-growing economy.
Mumbai-based Kotak is the largest Indian player in the country’s emerging alternative asset management industry. Having made its name in real estate funds, it now sees some of the best opportunities in direct corporate lending.
“The nature of opportunities now will be more mergers and acquisitions, growth-oriented financing,” said Srini Srinwasan, managing director of Kotak Investment Advisors, an arm of Kotak Mahindra Bank that manages $8.8 billion in assets.
There are also great opportunities in buying Indian commercial real estate, Srinivasan added. While “the rest of the world finds offices and retail unattractive,” he said, “India is the complete opposite.”
Alternative investments encompass a broad range of assets including private equity, private debt, infrastructure, real estate, venture capital, growth capital, and natural resources.
With the demand for distressed assets increasing in India, Srinivasan said alternative asset managers could also find opportunities in buyout financing, an area in which Indian banks and insurance companies are not active.
Kotak’s second asset fund, with investments from the Singapore and Abu Dhabi sovereign wealth funds GIC and ADIA, has secured $1.25 billion, Srinivasan said, but is targeting $1.6 billion in total. The company’s first TA fund, launched in 2019, has returned 20 percent since its launch.
Kotak has also raised a $500 million fund intended to invest in data centers, which it hopes will yield a 25 percent return, but has laid out plans to raise the startup fund due to market volatility and low valuations for tech companies.
Within India’s alternative asset management sector, “private credit has seen the biggest jump,” said Rajat Tandon, president of the Indian Alternative and Venture Capital Association.
For investors, stock valuations have fallen, and for companies, the cost of borrowing from banks has skyrocketed. Private credit is a good middle ground for both.
“In India in particular, traditional lenders are worried after several bad loan shocks, and non-bank finance institutions are still recovering from their liquidity crunch,” Tandon added. “So the private credit guys are taking this opportunity to fill that gap.”
Srinivasan’s comments come as global groups flock to India. The Canada Pension Plan Investment Board opened its office in Mumbai in 2015. Its latest bets in India include a $205 million investment in industrial property and warehousing, IndoSpace’s newest real estate fund.
Meanwhile, global investor Brookfield recently invested more than $1 billion in Indian renewable energy group Avaada to fund green hydrogen and ammonia projects.
In 2022, private credit investments accounted for 12 percent of India’s $56 billion in private equity and venture capital investment, up from 3 percent in 2021, according to Ernst & Young data provided by IVCA.
Kotak’s growth comes after a string of foreign firms wound up distressed asset funds in the country.
“When we first raised [special situations] finance [in 2019] “Apollo was actually packing his own money for special cases,” said Srinivasan. “Lone Star was closing. WL Ross had bagged it two years earlier.”
Some companies were “very early in the game,” Srinivasan said, adding that the benefits of India’s 2016 bankruptcy law took time to emerge.
The new legal framework allowed creditors to initiate insolvency proceedings against distressed companies and for courts to bring down company boards of directors, paving the way for sales of distressed assets.
“To succeed in India, you have to have feet on the ground,” added Srinwasan. “This is not a market you’re trying to run with what I call baggage bankers from Hong Kong and Singapore. It might be a nice lifestyle for them, but it won’t generate revenue.”