Chennai-based private equity firm TVS Capital Funds Ltd, which manages TVS Shriram Growth Fund-IA, has raised firm commitments of Rs 200 crore and is soon expected to make a first close of its top-up fund. The funds have been primarily raised from ultra high networth individuals (UHNWIs) and family offices, signalling the increased sophistication of investors entering this asset class.

TVS Capital launched TVS Shriram Growth Fund-IB in August 2011, targeting Rs 400 crore with a green shoe option to raise another Rs 100 crore. The PE firm is now close to making its debut exit and exploring new deal structures like mezzanine and private investment in public equity (PIPE).

Around 55 per cent of the current fundraising has come from ultra-HNWIs, who invest over Rs 5 crore, according to TVS Capital chairman & MD Gopal Srinivasan. “It’s a validation of the fact that plain vanilla fund is not acceptable except those which have operational capabilities with performance-shaping strategies,” he added.

The remaining capital has come primarily from HNWIs, typically investing Rs 1-2 crore. The fund plans to target domestic institutions, such as banks and insurance companies, in the second leg of the fundraising.

TVS Capital also raised the minimum threshold of commitments to Rs 50 lakh from the earlier Rs 25 lakh for this fund. Its maiden fund raised Rs 500 crore in July 2008 (and later added another Rs 100 crore), being one of the first PE funds to be raised completely from domestic investors.

According to Srinivasan, this time, TVS Capital has been specifically targeting ultra-HNWIs who are sophisticated investors with either a family office or an internal team or an advisor. “India needs sensible investors who diligently evaluate their investments. Ultra-HNWIs also bring in advice and their own networks,” he said. Srinivasan adds that ultra-HNWIs also do detailed due diligence, evaluating the past portfolio companies.

When TVS Capital was launched, it planned to raise a fund worth Rs 1,000 crore, but the board took a call to raise Rs 500 crore for the first fund and the rest in a follow-on offering. While TVS Shriram Growth Fund-I managed to raise Rs 600 crore, the top-up fund is the continuation of the same strategy. With TVS Shriram Growth Fund-IB, the sponsors – namely, the TVS Group and the Shriram Group – have committed a combined Rs 150 crore to the funds.

According to an earlier interview, TVS Capital would look at the next fund by 2014, which might also tap new sources of capital and include other strategies like controlled transactions.

Investment Strategy

TVS Capital is currently in advanced talks for two deals for the new fund, one of which is in premium consumer services space and the other is in processed food segment. The PE firm also expects to return 5 per cent of the capital of the first fund through one significant dividend payment while another exit is to be announced in the coming weeks.

Besides, it is also exploring PIPEs where it can pick up around 30 per cent stake in a listed firm with other PE players. Mezzanine funding, a hybrid of debt and equity financing, is also an option that TVS Capital is looking at in the current environment as it happens to be very flexible.

“Mezzanine is a big opportunity in the next three years as promoters also like it. There is a lot of incentive for promoters right now to do high-yield debt deals before waiting for markets to improve and then raise equity,” said Srinivasan.

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