Red Fort Capital, an India-focussed real estate private equity firm, is set to raise $500 million fund that will invest in commercial and residential assets in Asia's third-largest economy, two sources with knowledge of the matter told Reuters.

The company is in the final stages of fund raising, at a time when global fund raising markets are besieged by economic growth concerns, and will formally announce a "closure soon", said the sources, who declined to be named as they were not authorised to speak to the media.

Subhash Bedi, founding partner at Red Fort, declined to comment.

The private equity fund has made a first close of about $80 million in April last year.

Private equity investments in Indian property sector grew 14.5 per cent to $1.26 billion in 2011, compared with $1.1 billion a year ago, data from industry tracker showed.

Higher interest costs and nearly dried-up public markets forced developers to look out for alternative options for funds last year.

The Sensex shed 24.6 per cent in 2011 to be the world's worst-performing major equity market, while 13 interest rate increases since March 2010 by the central bank have pushed up borrowing costs and slowed down economic growth, making investors wary.

The latest property fund is Red Fort Capital's second fund. It has fully invested a $400 million fund earlier, said one of the sources.

Last March, Red Fort Capital said it has returned more than $100 million to investors since 2009. In the first quarter of 2011, the firm exited four investments in residential and office sectors located in New Delhi and Chennai, it said.

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