Avendus PE Investment Advisors, the asset management arm of Avendus Group, launched its second structured credit fund Avendus Structured Credit Fund II (ASCF–II) targeting a total corpus of Rs 1,000 crore (approximately $133 million), the home-grown financial services company said.
The fund, an alternative investment fund (AIF) Category II vehicle, includes the green shoe option of Rs 500 crore ($66.7 million).
“Through the new fund, we continue to increase our footprint in the credit investment space and strengthen our investment strategy to provide structured credit solutions to larger businesses while generating superior risk-adjusted returns for our investors,” Nilesh Dhedhi, fund manager at Avendus Structured Credit Fund, told VCCircle in an interaction.
The global private equity major KKR-backed investment firm aims to close the fundraising by early December.
It has already received soft commitments from both institutions and retail investors. “The retail will be a dominant one, but this time we are getting some of the institutions including the insurance and pension funds,” Dhedhi said adding that they do not get any foreign investors onboard as “we are a pure third-party fund managed by where we want to retain 100% of the decision making”.
ASCF-II has an overall target to make investments of around Rs 1,500-2,000 crore ($200-267 million), with 40-50% co-investments from its non-banking financial company (NBFC) arm Avendus Finance over a period of 1-2 years, he further said.
Under ASCF–I, which was launched in October 2017 with a corpus of Rs 150 crore ($20 million), Avendus started deployment in January 2018. It made investment deals worth Rs 650 crore in nine companies, along with co-investments worth Rs 500 crore from the NBFC arm in companies with existing relationships with Avendus.
With the launch of ASCF – II, the fund will take the lead in co-investments, Dhedhi added.
Avendus plans to deploy the funds in larger transactions into bigger companies with average investments ranging from Rs 150-200 crore ($20-26 million) as against a typical range of Rs 50-100 crore ($7-13 million) from the first fund.
“ASCF–II is a sector-agnostic fund focused on the performing credit space, providing structured credit solutions to high quality, growth-oriented companies with differentiated business models, backed by marquee sponsors,” the company statement further said.
Out of the nine transactions in the ASCF - I, “five have been fully exited and two have been partially exited. It has returned 100%+ capital back on a cash-on-cash basis within four years of its launch with a portfolio level gross IRR (internal rate of returns) of 17.5-18%,” the company said.
Established in 1999, Avendus Group operates in ten cities across India, the US, the UK, and Singapore.
The Mumbai-based firm is a diversified group that provides financial services in the areas of investment banking, wealth management, credit solutions and asset management. It handles $6.25 billion assets under management (AUM) under its wealth management ($5 billion AUM), assets management and credit solutions (excluding loan book) business.
Over the past five years, it has completed over 50 transactions with a total investment of over Rs 3,000 crore in the structured credit space through the NBFC and the AIF’s first fund.
KKR & Co bought a controlling stake in Avendus in 2015, a move that was seen to help the domestic firm scale its services in wealth management and private equity, besides foraying into the NBFC space.
Dedhi, who joined Avendus in 2009, was elevated in August this year to head the structured credit business to originate, structure and syndicate transactions, while continuing to be the fund manager for Avendus Structured Credit Fund.
“Now that COVID is gone and we have seen that the portfolio has kind of withstood all the pressures of the market and then we have returned 100% plus capital back to our investors. We thought, now is the right time to go and raise the second fund so that all the uncertainties are behind us,” Dhedhi said.
Under ASCF - II, the asset manager plans to invest in secured transactions of mid-to-large sized operating companies as well as holding companies, “which is basically the promoter financing whether it is private equity buyout for acquisition financing or any other reach to next round of IPO, CapEx or refinancing or any kind of structural credit products. Anything in that range of 16 to 18% is what we have been targeting,” Dhedhi stated.
Historically, Avendus has invested in sectors such as pharma, healthcare, information technology (IT) and ITes, speciality chemicals, specialised manufacturing where EBITDA margin is over 15% and recently into the electric vehicle space, Dhedhi pointed out stating this will continue.