IIFL Asset Management, a part of the IIFL Investment Managers group, is an India-focused, global asset management firm with differentiated products enabling sophisticated investors across the world to participate in India’s unique growth story. With an AUM of $ 4.26 billion (September 2017), the company focuses on long-term view with robust financial due diligence and offers dual capabilities in onshore and offshore asset management. Their diversified suite of mutual funds, alternative investment funds and venture capital funds span public and private equities, fixed income securities and real estate.
Manish Joshi of NewsBarons provides excerpts of an interaction with Abdeali Tambawala, Partner & Fund Manager – Real Estate, IIFL Asset Management Ltd. who informs ‘The size of market opportunity in the affordable/ mid-income segment is huge and expected to unfold over the next 5-10 years’.
NB: Give us an update on your domestic real estate funds?
Abdeali: We have deployed close to INR 5000 cr across our seven real estate funds since 2012. Out of this, we have fully exited two real estate funds with industry leading IRRs. Even in the current environment, we have exited and returned close to INR 1000 cr in the last one year or so. For the funds raised in 2014-15 we are looking at making exits and will return significant capital over the next 12-24 months. In the later funds we are working closely with our investee companies to ensure timely progress of the underlying projects
NB: You are looking at raising another USD 400-500 million Affordable Housing focused fund?
Abdeali: We are in the process of raising the India Housing Fund (a category II AIF) which has already crossed commitment of INR 1200 cr mark in a short time. The differentiated strategy has been very well received by our clients who are looking to diversify across asset classes. Our track record of complete exits from our first two real estate funds with industry leading IRRs gives them additional comfort to select IIFL as the Investment Manager to manage their real estate exposure. We are still in the fund raising mode and our offshore vehicle for the same fund is at advanced stage of discussions for large commitments from some marquee institutions.
NB: Tell us about your investment strategy in RE?
Abdeali: Given the current market environment we believe affordable/mid-income residential projects are likely to see the highest traction. Our target locations are the top 10-12 cities which have the depth to absorb demand for these projects. We are looking to fund projects which are likely to benefit from various government schemes like Credit Linked Subsidy Scheme (CLSS), section 80 IBA benefits etc. Even reforms like RERA present funding opportunities arising out of consolidation in the industry. The Fund will invest in the form of secured instruments establishing a base return with an upside. The investments will be secured with mortgage of the underlying land/ development rights and escrow mechanism for project cashflows.
NB: The residential real estate market has not seen growth since 2013 and the markets have been quite impacted by the introduction of RERA and GST. Your views?
Abdeali: The market has gone through time correction in most of the micro-markets and actual price correction in several markets as well. That said, projects in the affordable/mid income residential space have seen a good response over the last 12 months While new regulations like RERA and GST have had an impact in the short term we expect both these events to be a positive for the industry in the long term. Reforms like RERA are expected to make the industry better regulated and more transparent which shall attract funds from large foreign investors and domestic investors through various routes like private equity funds/ AIFs, NBFCs. On the back of economic growth over the next few years, real estate projects being planned more efficiently and keeping with the requirements of the demand in each market we expect the sector to see better traction over the next couple of years.
NB: What is your outlook on the RE sector?
Abdeali: Our view is that the sector is going through fundamental shift on several aspects which is hugely beneficial in the long term for end users and investors alike. The size of market opportunity in the affordable/ mid-income segment is huge and expected to unfold over the next 5-10 years. End user confidence in under-construction projects is returning where RERA has been successfully implemented. In the short term, the sector is expected to consolidate which is positive from many aspects. In the medium to long term, it will become a significant portion of the GDP attracting substantial amount of capital from both domestic and global investors.
NB: Are you looking at launching another fund?
Abdeali: We have launched a category III AIF called Housing Advantage Fund for our clients who do not have a need for regular cashflows but would rather prefer a higher IRR and multiple using leverage at fund level. We would be deploying leverage at Fund level which will be non-recourse to individual clients. The Investment strategy would be similar to India Housing Fund.
NB: Please provide an update us on the company development/s?
Abdeali: We are in the process of foraying into various investment strategies across asset classes on the mutual fund platform. First of those will be a first-of-its-kind equity interval scheme with a built-in portfolio hedge. This fund will benefit the investors who are apprehensive of current valuations and wish to protect their capital against a market fall and yet want to participate in the long term India Story. We are also in the process of raising funds in the private equity and technology space