‘We have returned $ 2bn to investors in 2 years’

Also, we have real estate strategies which look at late teen kind of returns. In aggregate, in credit we have $6.5 billion.  (Image/Bloomberg)

Kotak Alternate Asset Managers, the asset management business of Kotak Mahindra Group, has committed over $ 8.8 billion in capital through its special situations fund, credit funds, real estate funds, among others. Srini Sriniwasan, MD, tells Raghavendra Kamath that the asset manager has given annualised returns of 22% and 19% to investors in special situations and real estate funds over the last decade. Excerpts:

How are global investors looking at currency risk and investing with Indian fund managers?

From global investors’ perspective, India focused allocation is not yet mainstream. There are a set of investors who are well versed with India and therefore, chosen to make India-focused allocation. Many others have fair amount of allocation to India through Asian fund managers. As far as currency risk goes, global investors look at political stability, currency risk and other key parameters as part of portfolio allocation. According to a World Bank report, depreciation of rupee against dollar is steadily reducing. Going forward it’s expected to be less than 2%.

There is a perception that when stock markets boom, there are less opportunities for private credit. How do you look at it?

Also ReadDheeraj Hinduja says diesel not going to completely disappear but alternate fuel to grab key CV market share

I don’t think debt and equity substitute each other. If a promoter thinks his company will grow well, he can take credit. This helps him preserve equity value and increase it as well. India is a country which is short of capital. Therefore, the requirement of private credit will continue to be robust. In credit, we have a spectrum of funds, including strategic situations fund that gives returns of over 20% and private credit fund that gives returns in the mid-teens. Also, we have real estate strategies which look at late teen kind of returns. In aggregate, in credit we have $6.5 billion.

How is the special situations debt market now?

It depends on what you call as special situations. In 2018 when we raised the first fund, the Insolvency and Bankruptcy Code was one of the main reasons for it as there would be a number of opportunities. As it turned out, the majority of investments were done out of IBC. Then Covid happened, and that itself, created special situations. When we look back at the portfolio and construct for the second fund, any capital requirement that cannot be funded by conventional capital is a strategic situation. Therefore, we are a solution capital provider. It is not necessary that the company has to be in distress or under the IBC. It is a solution meant for the company and founder as the case may be. India does not have flexible capital providers and we think we fill the gap. We have already invested 20% of first special situations fund.

How much money you have returned to investors?

Last year, was a big year for us. In special situations fund 1, we returned $1 billion though exits. In real estate and special situations together, we returned $2 billion in the last two years. In special situations, we are clocking annualised returns (internal rate of return) of 22% and in real estate we have given annual returns of 19% over the last one decade.

Which asset classes will attract maximum capital in the next five to 10 years?

India is both equity and credit short country. Traditionally, Indian savers favour gold and real estate. I don’t think that fascination will go away soon, but today there are more avenues to access the same asset classes. For example, today you can access income producing assets through REITs and InvITs which was not possible a few years ago. Similarly, there are products available to access infrastructure assets. As time passes, more and more creative products will come about. In general, family offices and HNIs have bias towards capital protection strategies.

It seems global investors are selling real estate assets in India and investing in their home markets due to attractive returns, besides other reasons. Is it happening?

Many global investors with significant exposures to retail malls and offices in Europe and America are facing serious challenges there. As a result, they have to exit markets where they are making money and India happens to be one of them.

In India, while residential booming, office and warehousing seems to be struggling in terms of rental growth. What opportunities do these diverse trends offer?

I don’t think offices and warehousing are struggling at all. Residential is, of course, booming and net absorption is positive in the office segment. Rents are moving up in both office and warehousing. If you go by commentaries of REITs, markets are recovering pretty strongly.