Aditya Birla PE plans to raise $2 bn in five years

The private equity (PE) arm of Aditya Birla Group plans to raise about $2 billion in PE capital within the next five years. Sources close to the development said that the company would launch at least four PE funds, each of $400-500 million in size, over the next five years to reach the top-five slot in the industry. This, the company said, would make the forthcoming funds larger than its $250-million maiden fund, which the company is currently in the process of raising.

Although the company has not finalised the sectors where the forthcoming funds will be invested, the latest PE entrant said that they are likely to be sector-agnostic, similar to the present one.

“The present fund is a sector-agnostic fund – the investments are company-specific, and not essentially sector-specific. Depending on the market conditions, the themes of the next funds will be decided, but I do not see much change in our investment approach vis-à-vis the present fund,” said Aditya Birla Private Equity Managing Director & CEO, Bharat Banka.

The company, typically, ropes in 25-30 domestic institutional investors – like banks and insurers – for raising PE capital, while high networth individuals (HNIs) contribute in smaller ticket sizes too. A part of the PE capital is raised from the US and European markets as well. As a part of its strategy, about 20 per cent investments in the company’s PE funds would come from the promoters of Aditya Birla Group themselves.

The company reckons a return of at least 25 per cent from each of its PE funds, while keeping the hurdle rate at 10 per cent. While deploying the PE money, the company picks up a minority stake in the range of 26-49 per cent in the investee companies, and stays invested for 5-6 years.

“The biggest differentiator for us is that we participate with an active management in our portfolio firms. Our focus is mainly on the unlisted space, not the start-ups,” said Banka.

The PE industry is looking to raise $24 billion in 2009 for investing in India, which is more than double of the around $11 billion seen in 2008. This also includes real estate funds. About $500 million has been raised in PE so far during the calendar year. However, Aditya Birla Private Equity has said that it would prefer not to focus on the real estate sector.

“We won’t invest in real estate. Our current focus is education, healthcare, EPC sector, media and entertainment, logistics, equipment hiring companies and so on, where the businesses are consumer-centric,” added Banka.

At least 12 banks and insurers have invested in the company’s proposed $250-million fund. The company said that, while $80-100 million would be raised in India for this fund, the rest would be raised from overseas pension houses, trustees, and fund of funds. The fund is expected to be closed for investment in the next six months.

Recently, the company picked up a minority stake in the Bombay Stock Exchange during its demutualisation process. Besides this, the fund has bought a 26 per cent stake in apparel retail chain V Mart.