IDFC shifts its PE strategy to consumption-led infra

IDFC Alternatives, one of the largest multi-asset class fund managers with a corpus of Rs 14,414 crore, is shifting its focus for private equity (PE) business from growth opportunities in infrastructure for public utility to those linked with consumption. The firm, which also has a separate infrastructure fund outside its private equity business, will continue to invest in operational utility infrastructure that could give assured returns.

"There is no one setting up a new road or a port or a power company; there are talks only about buying out assets," says M K Sinha, managing partner and CEO of IDFC Alternatives, giving reasons for a shift in the investment strategy. The 12-year-old firm has one of the largest PE investments in infrastructure sector with a corpus of Rs 5,700 crore across three funds.

"Private equity opportunity in infrastructure was the opportunity between 2002 and 2008, that was the time to put growth equity in development risk," Sinha adds.

IDFC Alternatives manages three private funds across private equity, infrastructure and real estate business. The shift in strategy means that the investment in infrastructure utility will be done outside of the PE business.

In 2004, its PE business invested in GMR Energy whose parent GMR Infrastructure was setting up a plant. But this year, when Abu Dhabi-based Taqa announced to buy two operational hydro-power plants from the debt-laden Jaypee Group, IDFC Alternatives proposed to be a co-investor. It planned to buy out a 10 per cent stake in these assets, which required Rs 10,320 crore investment.

IDFC Alternatives raised $644 million for its second infrastructure fund in September after exhausting 84 per cent of $927 million raised as the first fund in 2009. This fund is meant for investing in operational assets. The deal was aborted last month after Taqa withdrew and subsequently Reliance Power announced to buy those assets.

"Our approach for infrastructure market now is to buy out some of the operating assets from promoters who need the money as equity to complete the other under-construction projects; once you buy those operational assets, it is an annuity business and not private equity," he explains.

In the private equity business, it has fully invested Rs 5,700 crore that it raised through three funds and now it is in exit mode. "In our PE business, the last few deals have linkage to consumption," informs Sinha.

This includes Parag Milk Foods, StarAgri Warehousing and Collateral Management. "That is the direction we are moving; it is a theme that links infra with consumption but is not utility," he says. It is also not in a hurry to raise fresh PE fund at this moment despite being fully invested. It rather aims to use the current sentiments to get return on the money through exits, before it reaches the limited partner for fresh investments in a new fund.