ICICI Venture Funds Management Co, the private equity arm of India’s largest private sector lender ICICI Bank, has topped off the first close of its latest fund, at $350 million from $250 million announced in October this year.

India Advantage Fund Series 3 is raised solely from the domestic investors, and the latest development is indicative of the strong interest from financial institutions and HNIs in private equity as an asset class.

"It is true that we have topped off the first close of IAF 3 at $350 million," an ICICI spokesperson confirmed to VCCircle. "We have been receiving positive response and lot of support from domestic instutions and HNIs," the spokesperson said.

Private equity watchers said the rise of domestic Limited Partners (LPs) was probably the single most important story for the sector in 2009. A few more new funds are set to announce their first close by raising capital only from the local market. "The liquidity in the market is good, and domestic money is becoming the predominant source," said ICICI Venture CEO & MD Vishakha Mulye (pictured) in an earlier interview.

IAF 3 has a soft target of $500 million, and it could raise a further $300 million. The second close at $450-500 million is expected by the this financial year-end. The new fund will look at infrastructure derivatives and the consumption story as it starts chasing both growth capital and buyout transactions.

Recently, AV Birla Group tapped the domestic market to raise a private equity fund with a first close at Rs 500 crore. Reliance Equity Advisors, in which Anil Dhirubhai Ambani Group is anchor investor, and a new fund being set up by former ICICI Venture head Renuka Ramnath are also on the road looking at local investors.

While banks and insurance companies account for most of the domestic fund raising currently, retail investors (read HNIs) are increasingly becoming important. The other LP segments like family offices (though quite a few have set up their own VC/PE funds) and fund of funds are still in an evolving phase in India.

"There is lot of retail participation at Rs 2-3 crore level," said a fund manager who is currently on the road raising a new standalone fund. He, however, cautioned against mis-selling the instrument to smaller retail investors by the traditional mutual fund distributors, which could bring in regulatory intervention sooner than later.

This is a new asset class with a high risk, high return norm. So the story of high return should be placed in a context to retail investors who come in with Rs 25 lakh. It needs to be explained to this set of investors," he added, while hoping that private equity industry would raise the bar for baseline investors as the domestic LP story evolves.

The domestic LP story took a significant step when a clutch of real estate and infra focused funds - Urban Infrastrucrture Opportunities Fund and Peninsula Land - unlocked local capital some three years ago.

This will be the first fund close for ICICI Venture after Renuka Ramnath, who headed the fund for nearly a decade, quit earlier this year. The new fund follows the $810-million India Advantage Fund Series 2, which was capped at $583 million. The first of the series raised $245 million. ICICI Venture also has a real estate and a mezzanine fund.

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