Kotak turns second fund into $400m club

After consulting with its investors, the Indian fund manager has changed its second fund into more of a club offering with an increased target size, and has held a first close on $240 million.

Kotak Realty Fund, the real estate fund management arm of the $20 billion Indian financial group Kotak Mahindra, has hauled $240 million in a first closing on its fourth US dollar denominated fund, after transforming it into an investment club, PERE understands.

The fund was first mooted at the end of 2011 but Kotak is understood to have began approaching investors about six months ago with a view to raising $350 million for its Kotak India Realty Fund II.

As discussions with its investors progressed the firm was influenced to switch the fund into a vehicle more resembling an investment club with limited investors and a tight investing strategy. However, in a departure to many investment clubs, Kotak will still enjoy discretion over investing decisions.

Among the large investors was the United Arab Emirates’ preeminent sovereign wealth fund, Abu Dhabi Investment Authority (ADIA), which reportedly has committed $200 million.

Kotak has committed an additional $40 million to the fund. With such a sizeable chunk of the capital on board it is understood to have increased its equity target to $400 million on the proviso that the firm could invite other investors to participate.

To that end, a limited number of other large institutions are thought to be in advanced talks with the firm over taking up the remaining $160 million. A final closing for the vehicle is anticipated to happen by the end of September.

The fund’s strategy has been wrapped around investments in residential projects in five major Indian cities, predominately via senior secured finance positions. From these capital outlays, Kotak is expecting returns of between 20 percent to 23 percent IRR on an unlevered basis.

Kotak Realty declined to comment.