Public sector development financial institution IFCI is partnering with global investment firm Sycamore Ventures, to raise a $500 million infrastructure fund, people with direct knowledge of the development told VCCircle.
IFCI Ltd, which is coming in as a principal sponsor to the fund, will put in $100 million to the fund, which will be named IFCI Sycamore Infrastructure Fund. The fund managers are on road to raise money and have already started discussions with institutional investors. The fund is mainly looking to invest at the project or the SPV level of the company. It is, however, open to investing at the holding or the operating level.
The new India fund is essentially trying to employ a whole gamut of strategies within infrastructure with transport, logistics and energy being the key focus areas. The fund will have an investment horizon of 3-7 years.
“It is a combination of both project and private equity,” said a person briefing about the investment strategy, on conditions of anonymity.
An e-mail query sent to Ravi Singh, partner at Sycamore Ventures who focuses on the firm’s India-related investments, did not elicit any response till the time of writing this article. A spokesperson for IFCI Ltd did not comment either.
Sycamore is a global investment firm with offices in the USA, India and Singapore. The asset management firm typically makes growth equity investments in the range of $5-$20 million into companies. In terms of India exposure, it has invested $5 million in VNR Infrastructure (an infrastructure services company catering to the railway sector) in 2008 and an undisclosed amount in Global Offshore Services Ltd in 2007.
IFCI has subsidiaries or affiliate funds catering to different sectors – IFCI Financial Services Ltd (finance), IFCI Venture Capital Funds Ltd (early-stage growth funding), Tourism Finance Corporation of India Ltd (tourism) and Assets Care and Reconstruction Enterprise (ACRE) Ltd (an asset reconstruction company) to acquire non-performing liabilities, among others.
That infrastructure is the biggest investment opportunity for the investors in the near future is a no-brainer. According to a McKinsey report, India needs to invest $1.2 trillion ($130/capita/annum) in its cities over 2010-30 – 20 times the amount spent over the last decade. About half of this will be met by private sector schemes and investors.
There are a host of funds targeting the Indian infrastructure space in a private equity/growth equity style of investing – owning minority stakes in companies that focus on the infrastructure services space. IFCI-Sycamore Infrastructure Fund essentially follows the likes of IDFC Project Equity and Morgan Stanley Infrastructure Partners which have the mandate of investing only into core infrastructure assets. Typically, such infrastructure funds have a long-term investment strategy, targeting assets which have clear visibility of strong, predictable cash flows in the form of regular dividend distribution, low volatility of returns and potentials for capital growth.
Although a flourishing domestic growth and a huge infrastructure opportunity make for a compelling investment thesis, fundraising remains challenging. There are more than a dozen private equity funds out from India to raise money. Lack of experienced fund managers, a host of me-too funds, a huge capital overhang and a not-too-strong exit track record are some of the factors which are keeping a lot of interested but cautious institutional investors at bay.