The $250-million fund (Rs 1,625 crore) has a mandate to invest more than half its corpus in private companies in pre-IPO situations, CEO Prashasta Seth told VCCircle. The remaining corpus will be invested at the time of IPOs.
The fund is categorized as a category II Alternative Investment Fund under capital markets regulator Securities and Exchange Board of India’s norms. Category II funds include private equity funds.
Seth said the fund will target investments in companies six to 12 months before their listing. The entire fund may make 15-20 pre-IPO investments in all. The investments may be in the range of Rs 100 crore to Rs 200 crore, he said.
The development was first reported by the Mint newspaper earlier on Friday.
Seth said companies are less expensive before their IPOs, justifying the rationale for a pre-IPO fund.
The firm initially tested the concept of investing in pre-IPO situations through IIFL Seed Ventures Fund, which closed at Rs 500 crore, Seth said. This fund invested in three companies—Ujjivan Financial Services, PNB Housing Finance Ltd and RBL Bank Ltd—before their IPOs and generated high returns.
This motivated the company to launch an independent pre-IPO fund in IIFL Special Opportunities Fund, Seth said.
The firm has already invested in five companies—including two pre-IPO deals—from this fund and has drawn 25% of the corpus. Seth declined to disclose the companies’ names.
The latest fund was conceptualised earlier this year and closed within two months of its launch, signifying high investor interest, Seth said. As a result, IIFL is raising a second such fund with a target corpus of $250-300 million, he added.
The IIFL Special Opportunities Fund intends to return money to investors within two years, Seth said. While pre-IPO investments can be exited within a year of the company’s listing, investments made during the IPO can be exited at any point, he said, explaining the short life term of this fund.
Usually, private equity firms have a longer fund life of 10 years with a two-year extension option.
IIFL Asset Management also makes private equity investments through its subsidiary India Alternatives Private Equity.
The group closed its first alternative investment fund, called IIFL Income Opportunities Fund, in March 2013. The private debt fund raised over Rs 600 crore. It also closed a hedge fund, called IIFL Asset Revival Fund, in November 2013 after raising over Rs 280 crore.