ASIA NEWS: Rutley’s Indian adventure on ice

Investor appetite for Indian real estate opportunity ventures is on the comeback but it will be a little while yet before closed-ended real estate funds, particularly those managed by overseas managers, start to recapture LP commitments.

Last month, news surfaced that Rutley Capital Partners, the private equity real estate arm of London-based property services firm Knight Frank, had shelved plans for its Rutley Indian Property Limited opportunity fund. It was the second Indian opportunity fund managed by a London-based manager to be suspended this year following Catalyst Capital and Samsara Capital’s joint effort, which was postponed in March.

Nick Burnell

The fund, which targeted up to $300 million in commitments according to an announcement by the firm in 2007, was planning to invest in residential schemes in Indian cities including Chennai, Bangalore and Pune. But after investors became weary of a plethora of managers attempting likewise and producing little in the way of sustainable returns, the firm applied the brakes.
Rutley’s managing partner Nick Burnell told PERE that a combination of soft and hard commitments had been garnered but the fundraising climate become too tough to continue and a decision to stop was taken earlier this year.

“Clearly it was the wrong time. There was a lot of uncertainty about what would happen in the market,” he said. “The supply-

There was a lot of uncertainty about what would happen in the market.

Nick Burnell

demand imbalance for low to mid range housing is still there. This was just about what international investors want do right now.”He added that more mature markets closer to home were showing better value so it was felt the firm’s efforts were best re-allocated. “But we have the infrastructure on the ground to do it when we want to,” he said.

Some argue that while the overseas investor has turned its back on the foreign managed, India-focused closed-ended fund, enthusiasm for investing in Indian-based companies is back. Vaibhav Rekhi, director at advisory firm Savills Capital Advisors said capital is now being raised through Qualified Investor Placements (QIPs), a preinitial public offering style format which sees Indian banks underwrite placements and then sell them to foreign investors.

According to research by Indian news provider VC Circle, more than $2.68 billion has been or is slated through QIPs. Real estate firms such as Unitech and Indiabulls Real Estate are two of a number from the sector to have adopted this route.

Rekhi said: “There will be a lag effect in terms of investment in Indian real estate that could see uptake in the market in 2010. Then there is a real possibility of going back to a modified closed-ended fund structure.” Rekhi said that those that do relaunch closed-ended vehicles are likely to move away from the traditional 2:20 structure, introduce discounted fee structures and tiered promote as well as “a deal approval system” whereby investors can opt out of deals if they wish.