In a year and half, Bahrain-based Investcorp has invested around $600 million in Indian start-ups and real estate space and is expecting its AUM (assets under management) across these two segments to cross $1 billion in valuation in the short term, a senior company executive told BusinessLine.
While it reached $500 million in AUM by December 2021, it expects to touch $2 billion in AUM in the mid-term.
The company is currently raising a fresh fund of $500 million to invest in Indian start-ups particularly focusing on the mid-market private equity investor’s key four key themes which includes modern and affordable healthcare, aspirational consumption, digitisation of businesses and inefficiencies in Indian social infrastructure across logistics, warehousing, education and financial services segments.
Investcorp typically enters at Series C round and has so far made around 13 bets of $25-40 million in cheque sizes. So far $300 million has been deployed in start-ups and the portfolio includes XpressBees, Wingreens Farms, Bewakoof, NephroPlus, CityKart, FreshToHome and Zolo.
Speaking to BusinessLine, Harsh Shethia, Managing Partner and Head of Investcorp India, said, “We are not a venture capital fund. Most domestic funds are tech focussed; we are more growth focussed. The second fund we are targeting is $400 million, with a hard cap of $500 million. We’ll have co-investments which will account over $100 million of it. With that we can take cheque sizes up to $50 million. We’ll keep the investing strategy similar to the first one.”
The company will invest in 10-12 businesses from the second fund with an average holding period of two years.
Real estate, warehousing REIT
According to Shethia, globally Investcorp has over $8 billion in AUM in the real estate sector. Of this, residential projects is the largest segment contributing nearly $4 billion while warehousing is the second largest followed by commercial projects which covers a significantly smaller pie.
In India, Investcorp had recently led a funding round in NDR Warehousing, one of the largest warehouses domestically having 18 logistics centres across eight major cities with a total area of 12 million square feet. Investcorp invested around $55 million in this warehousing company.
“We have backed this warehouse company which has 12 million square feet leased warehouse space. We want to grow it to 19 million square feet over the next one and a half years,” Shethia said.
Shethia plans to float a real estate investment trust or REIT to fund the warehousing expansion.
On the residential projects in India, the company has so far deployed nearly $300 million, financing RERA approved projects with well-known builders across top cities, in an AIF format. The company is not taking a green field approach and wants to focus on financing real estate projects here.
He said, “In India, there’s no rental yield in residential projects, this is not attractive as a sector. So, you can either be a developer, which we found could be risky for us as we are new to the market. We decided to provide loans, which is in an AIF structure. It’s a good balance of risk and rewards and these projects are in RERA approved properties in certain cities by well-known developers. Those loans have good collateral and asset value.”
These funds are for a three-year tenure, that can be expanded by a year or two. The kind of projects being funded too is in line with the company’s aspirational consumption philosophy focussing on first-time and young homebuyers providing affordability and ample facilities.
Onboarding Mark Mobius
In February 2022, Investcorp appointed emerging markets veteran investor Mark Mobius to its India advisory board.
“He has an amazing reputation. He had the energy to start his own fund after he left Franklin Templeton. In 2021, he made phenomenal returns. We spoke to him about his major returns and his secret sauce on how did it. It is very interesting to know that his thinking matches a lot with Investcorp’s thinking. Even though he does public markets and we are into private markets,” Shethia said.
He added, “He too has very few investments in portfolio, just 12 bets. He is very bullish on Taiwan but the second most bullish market for him is India. He said he really outperformed last year because he is bullish on India.”
“He does look into certain profitability measures but he largely looks at ESG and the company culture. They don’t invest unless they meet the management, understand the company. It’s not a spreadsheet-based analysis, which is a filtering criteria. There’s a lot of effort by Mark Mobius and his team to find the right management that will deliver the value proposition across sectors,” he said.
Mobius will help Investcorp with his insights on companies and businesses.
April 11, 2022