The fund has been deferred since Kotak has been unable to deploy the investment during the vintage of the fund
The FoF, launched last August, was set up with a target to raise INR 1,500 Cr, including a greenshoe option of INR 750 Cr
The fund’s objective was to diversify across PE/VC funds in multiple sectors and across multiple stages
Kotak Investment Advisors Limited (KIAL) has reportedly deferred its Fund of Fund (FoF), the Kotak India Alternate Allocation Fund, that was launched last year to invest in venture capital (VC) and private equity (PE) funds.
“In PE/VC investment, the vintage of the fund, that is, the time to start deploying capital is very important. Presently, valuations are correcting; hence it is prudent for FoF to defer investing and catch a better vintage of funds. With this view, we have taken the call to postpone the PE/VC FOF,” a KIAL spokesperson was cited as saying by Mint.
The publication cited another person who stated that KIAL has already started conversations with limited partners and will soon be returning the money it has drawn.
The FoF, launched last August as an alternate investment fund (AIF), was set up with a target to raise INR 1,500 Cr, including a greenshoe option of INR 750 Cr.
“The fund’s objective is to diversify across PE/VC funds in multiple sectors, including consumer, technology, healthcare, financials, etc, as well as across multiple stages, from early stage to growth stage and late stage across different vintages,” a press statement from Kotak said at the time of the launch of the FoF.
‘Vintage’ here refers to the first year the fund starts investing in companies.
KIAL aimed to solve the problem of concentration risk in VC investing because of a high minimum investment requirement.
At the time of the FoF’s launch, Nidhi Chawla, fund manager of Kotak India Alternate Allocation Fund, said, “Lack of knowledge and information availability in this asset class makes it difficult to take an informed choice. Through Kotak’s Fund of Funds, we intend to provide investors access to multiple funds as well as leverage our institutional diligence with peer benchmarking data available, coupled with institutional monitoring of long-tenure funds.”
Kotak’s fund was launched at a time when there was strong interest from high-net-worth individuals (HNIs) to invest in the PE space and from there, in startups. Since a fund has a limited life cycle, there is a defined deployment period. If the general partner fails to deploy the fund, they can return it to limited partners along with the fee earned.
This is what Kotak is said to have deferred the FoF since the poor market conditions prevented it from deploying the fund in a meaningful way.
The VC and PE markets in India have become a lucrative space for HNIs to invest in, especially after the IPO fest that was 2021. In a breakthrough year for startup IPOs, 11 Indian tech startups went public, including the likes of Nykaa, Zomato and Paytm, which are some of the biggest names in India’s startup ecosystem.
The huge exits some of the investors had from the IPOs saw the space become a lucrative investment opportunity. However, given the current macroeconomic headwinds prevailing in the world, funding has slowed down in India’s startups.
Per Inc42’s ‘Indian Tech Startup Funding Report, Q1 2023’, startup funding was down 75% compared to the year-ago quarter.
Even so, fund launches have trudged along at a good pace. Per Inc42 data, India’s VC and PE firms, angel networks and venture debt firms have already announced or closed funds worth about $2.3 Bn in 2023 so far, after investors announced or raised 126 funds worth $18.3 Bn in 2022.