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Kotak closes $400m club fund with ADIA, QIA

The Mumbai-based fund manager has attracted two large sovereign wealth funds for its latest US dollar denominated fund after changing the structure to a club.

Kotak Realty Fund, the real estate fund management arm of the $20 billion Indian financial group Kotak Mahindra, has held a long-anticipated final close on its Kotak India Realty Fund II with the backing of two Middle Eastern sovereign wealth funds, PERE can reveal.

The vehicle hit its $400 million final target just last week, after it was understood to have sealed a $160 million commitment from the Qatar Investment Authority (QIA). Kotak itself committed $40 million, and the Abu Dhabi Investment Authority (ADIA) put up $200 million of the capital, PERE reported in August.

The fund was first mooted at the end of 2011 but Kotak is understood to have begun approaching investors in February of last year with a view to raising $350 million.

As discussions with its investors progressed the firm was influenced to switch the fund into a vehicle more resembling an investment club, and simultaneously it upped its target to $400 million. However, in a departure to many investment clubs, Kotak will still enjoy discretion over investing decisions.

Kotak is understood to have invested only $15 million of that capital, understood to be a deliberate ploy to await the ramifications of the country’s elections in May.

The fund’s strategy is wrapped around investments in residential projects in six major Indian cities, expected to be made predominately via senior secured finance positions. It is understood that the fund’s investors are not keen to venture beyond these cities.

Kotak is expecting returns of between 20 percent to 23 percent IRR on an unlevered basis.

A large amount of capital has been raised in the past few months for Indian residential investment. In November, Brookfield Asset Management closed a $200 million joint venture vehicle with Indian conglomerate Piramal Enterprises, and in February the Canada Pension Plan Investment Board (CPPIB) also teamed with Piramal for a $500 million residential debt platform.

Kotak declined to comment on fundraising.