Low returns on Anand Jain's realty funds irk investors

Management asked for reasons state of sector blamed

Investors of Jai Corp’s two realty funds — Urban Infrastructure Opportunities Fund (UIOF) and Urban Infrastructure Real Estate Fund (UIREF) — are irked over low returns. The funds have invested in a slew of real estate projects across India over the past six years. Some investors have met the top management, led by Jai Corp Chairman Anand Jain, seeking better returns for the funds.

Some of the marquee investors in the domestic fund included Life Insurance Corporation, State Bank of India, ICICI Bank and Axis Bank. Investors say they are worried as the performances of both funds have failed to match the projections made when launched. “We met Jain in Mumbai, asking a lot of questions on the performance. We were told the funds would need more time for giving positive returns,” an investor told Business Standard.

Email questionnaires to Anand Jain on Friday and Saturday did not elicit any response. Jain was unavailable for comments in spite of several text messages and telephone calls. But an insider told Business Standard that due to high interest rates, high debt and a slowdown in the economy, many real estate projects are stuck and are unable to get completed in time.

The company source said the company bought back units worth Rs 322 crore from many investors who wanted to exit the fund. In fact, achieving exits have been difficult for the entire private equity (PE) real estate segment, with about only 20 per cent of investments getting exits till now, the source said. In the current financial year, the funds would continue to explore exits from the portfolio investments and execution of the projects.

In 2006, Jain had launched UIOF with a tenure of seven years. The funds raised close to Rs 2,434-crore and invested in 34 special purpose vehicles in 15 cities in India. A year later, Jain also launched UIREF, an offshore fund of $295 million. The fund with eight-year-old tenure raised funds from international investors in the high-risk, high-return Indian realty sector.

Anand Jain is a close friend of Reliance Industries chairman Mukesh Ambani and is also an investor in a special economic zone project in Maharashtra with his listed company, Jai Corp. Jain does not hold any position in Reliance Industries.

Experts say early PE investors in the real estate sector are now feeling the heat. A Jones Lang LaSalle report said investments in real estate by funds are marred by lack of transparency and information asymmetry. “PE players used to look towards primarily high-return, due to lack of means and precedence to detail the risk factor in India. This underestimation of risk and subsequent overheating of the real estate sector have made them revert to stringent risk profiling tests,” the report said.

Adding: “Early investors having been saddled with delayed project executions and low demand in major Indian cities, funds are now undertaking a more detailed analysis of risks.”

In 2009, the income tax department had investigated Jai Corp and the investments made by the two funds in real estate projects in various tier-II cities. The matter is pending.