Headwinds continue to hinder India’s real estate-focused private equity funds, looking to raise capital globally. So much so that even the maiden fund floated by the infrastructure and construction major Shapoorji Pallonji Group appears to have been caught in a maelstrom. The offshore realty fund, launched in late 2010, is yet to see its first close and has not reached even one-fourth of its target of $500 million, according to sources privy to the development.

Three independent sources told VCCircle that Shapoorji Pallonji had raised $50 million as part of the commitment from the promoter group. “The parent company has come in as the anchor investor,” one of the sources said.

The group has registered its fund in Mauritius and is to be advised by Shapoorji Pallonji Investment Managers Ltd. There had been plans to invest in projects by external developers, as well as in its home projects.

Shapoorji Pallonji roped in Macquarie as its placement agent after bringing together a team way back in April 2010 for the fund. It also hired Rajesh Agarwal almost two years ago to lead the fundraising initiative. Agarwal was earlier spearheading AIG Global Real Estate in India as the managing director of the fund.

When contacted, Agarwal declined to comment on the latest situation, citing company policy. A questionnaire e-mailed to the CIO Venkat Gopalkrishnan also went unanswered.

The main problem in fundraising appears to be the set of investors that the proposed fund is targeting. As an offshore fund, Shapoorji Pallonji is targeting a cautious investor class to bet on a volatile realty market in India. Concerns shown by Indian authorities over the structuring of realty deals with fixed returns, poor execution record in the recent past and difficult exit opportunities, make the risk perception even higher than average.

“In fact, Shapoorji Pallonji has come back blank from outside,” said another source who did not wish to be identified. “It was supposed to close the first tranche of approximately $250 million in April-May last year but had not raised anything outside,” he added.

According to sources, the fund managed to get a commitment of $120 million last year, but now there is a problem with the drawdown as the fund has not been able to raise money.

An analyst with a domestic brokerage said, “Private equity funds being floated by developers are always a risky proposition. Even though Shapoorji Pallonji is a big name in the construction and realty circles, its earlier financial venture, a non-banking financial services offering, was a debacle.”

Other realty funds which have failed to take off include CIG Realty Funds, promoted by the Chandra family who are the promoters of Delhi-based Unitech Group. The fund would have been targeting slum redevelopment projects in Mumbai. Mumbai-based Ackruti City has also tied up with Pacifica and Beekman Helix India Partners LLC, but the fund is yet to take off. Pune-based Kolte Patil Developers was also unsuccessful in raising funds.

Even though funds sponsored by property developers are finding it difficult to raise money, many other India-focused realty funds are looking to raise over $5.3 billion in aggregate in the near future. For instance, Red Fort Capital, a north-based realty fund, has recently made a successful closure, having managed to raise $500 million for its second fund while India Infoline Venture Capital Fund, the private equity arm of the India Infoline group (IIFL), has completed raising a Rs 500 crore fund dubbed IIFL Real Estate Fund (Domestic) Series I.

Private equity funding in realty projects was also up at $1.3 billion during 2011, as against $1.1 billion during 2010, according to VCCEdge, the financial research platform of VCCircle.

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