The fund will invest in initial public offerings, primarily through pre-IPO investments in private companies that are bound for an initial share sale, as well as investing in IPOs as an institutional investor, said Amit Shah, chief executive at IIFL Asset Management.
The first series of the fund (amounting to $250 million) was raised in a span of two months. Following the strong demand, IIFL is planning to soon start raising another tranche of capital for the fund. The second series could see the firm raise another $250-300 million, said Shah.
The IPO-focused fund comes at a time when the primary market is witnessing significant activity.
In 2016, 26 companies raised Rs26,493.8 crore through IPOs, according to data from primary market tracker Prime Database. In the previous year, 21 companies raised Rs13,614 crore through IPOs, the data showed.
Several of these companies have gone on to give extremely attractive returns to investors.
According to stock exchange data, small finance bank Ujjivan Financial Services Ltd has gained 62% from its issue price of Rs210 and housing finance lender PNB Housing Finance Ltd has gained 68% from its issue price, while private sector bank RBL Bank Ltd gained 145% from its issue price of Rs225 per share.
According to Shah, the asset management firm’s decision to launch a focused fund was based on conviction on strong liquidity flows into the Indian public markets and the quality and scale of the IPO pipeline.
“We have phenomenal conviction both on the market as well as the potential of papers coming up in the next two-three years. We expect consistent domestic capital flow of $12-15 billion for next three-five years through mutual fund flows and HNIs (high-net-worth individuals) allocating slightly more to equity within their portfolios. We also expect to see roughly another $8-10 billion of FII (foreign institutional investor) inflows, which means that markets could see consistent inflows of over $20 billion,” said Shah.
The strong flow of new paper in the IPO market is being driven by various sources such as government disinvestment, public sector banks seeking to exit non-core assets to raise capital and private equity funds looking to exit portfolio firms, he said.
The central government has set itself a disinvestment target of Rs72,500 crore this financial year. Earlier in May, Mint reported that estimates suggest the government could raise as much as Rs18,000 crore this fiscal through IPOs.
“We are not worried about the flow of paper, we believe we can easily manage around Rs5,000-6,000 crore of capital in this strategy,” said Shah.
The firm has in the past dabbled with the strategy of pre-IPO investments through its IIFL Seed Ventures fund, which invested in IPO-bound RBL Bank and Ujjivan.
IIFL has already deployed close to 20% of the corpus raised, said Prashasta Seth, chief investment officer at IIFL Asset Management.
“Around 50-80% of the corpus will go into pre-IPO investments. The fund has a life of 42 months. While we do not have specific sector preferences, we will be avoiding cyclical businesses, as in pre-IPO investment you can have a holding period of 12-18 months,” Seth said.
The firm is looking at an average ticket sizes of Rs100-400 crore, across the two series, he added.
IIFL is also working on several other new strategies, which could see its assets under management grow to $6 billion by the end of the financial year, from currently around $4 billion, said Shah.
“We believe that there is a scope for ETFs (exchange-traded funds) in India, we are trying to work on an active ETF. We are also working on a high yield fund on the fixed income side. By the end of the year we might look at a core private equity product,” said Shah.