Kotak Investment Advisors Ltd (KIAL) has decided to defer its Kotak India Alternate Allocation Fund, according to media reports. According to a report by LiveMint, the private equity (PE) investments arm of Kotak Mahindra Bank will be pausing the Fund of Funds (FoF) that was launched last year to invest primarily in PE and VC funds. The reason for doing it? According to KIAL, it is making the move due to poor market conditions and the company’s own inability to deploy the investment during the vintage (the first year wherein the fund starts investing in enterprises) of the fund.
For those who missed it, the FoF had been launched in August 2022 by KIAL as an alternate investment fund (AIF). At that time, it was set up with a target to raise a total of ₹1,500 crores, including a greenshoe option of ₹750 crores. The objective of the fund was to diversify across private equity and venture capital funds alike, and across multiple sectors (such as consumer, technology, healthcare, and financial) and stages (ranging from early stage to growth and late stages).
At the time of the launch of the fund, the ecosystem was the cynosure of the eyes of the HNIs in the last few years to invest in the PE space. 2021 was the year for startups, especially since numerous Indian startups raised billions in funding, became unicorns, and decided to go public. However, the huge exits that the investors from the IPOs had was soon overturned by the funding winter and the economic downturn that characterized the majority of 2022 and a major portion of the current year.
“In PE/VC investment, vintage of the fund i.e. the time to start deploying capital is very important. Presently, valuations are correcting; hence it is prudent for FoF to defer investing and catch a better vintage of funds. With this view, we have taken the call to postpone the PE/VC FOF,” a spokesperson for KIAL spoke on the matter, while the company remained mum on whether the FoF will start returning money it has raised so far back to investors. According to a person with knowledge of the matter, the company has already initiated talks with LPs and will soon be returning money it has “drawn down.”
The FoF was meant to solve the problem of concentration risk in VC investing due to high minimum investment requirements. According to Nidhi Chawla, Fund Manager at KIAL, the lack of knowledge and information availability in this asset class mde it difficult to make an informed choice. This is where Kotak’s Fund of Funds comes in, and the company intends to provide investors access to multiple funds as well as “leverage our institutional diligence with peer benchmarking data available, coupled with institutional monitoring of long tenure funds.”
