Kotak Investment Advisors Limited Defers Plans for Fund of Funds (FoF)
- ByStartupStory | April 14, 2023
Kotak Investment Advisors Limited (KIAL) has reportedly decided to defer its Fund of Fund (FoF), the Kotak India Alternate Allocation Fund, which was launched last year with the aim of investing in venture capital (VC) and private equity (PE) funds. According to a spokesperson from KIAL, the decision was made due to the current correction in valuations in the PE/VC investment space. The spokesperson stated, “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.” This move reflects KIAL’s strategy to wait for a more favorable investment environment before deploying capital in PE/VC funds.
Kotak Investment Advisors Limited (KIAL) has reportedly initiated discussions with limited partners and will soon be returning the funds it has drawn for its Fund of Fund (FoF), the Kotak India Alternate Allocation Fund. The FoF was launched in August last year as an alternate investment fund (AIF) with a target to raise INR 1,500 Cr, including a greenshoe option of INR 750 Cr. According to a press statement from Kotak at the time of the launch, the FoF aimed to diversify investments across PE/VC funds in various sectors such as consumer, technology, healthcare, financials, and across different stages from early stage to growth stage and late stage, spanning different vintages.
Kotak Investment Advisors Limited (KIAL) launched the Kotak India Alternate Allocation Fund to address the concentration risk associated with venture capital (VC) investing due to high minimum investment requirements. Nidhi Chawla, the fund manager of Kotak India Alternate Allocation Fund, stated during the FoF’s launch that the lack of knowledge and information availability in this asset class makes it challenging to make informed investment decisions. KIAL’s FoF aimed to provide investors with access to multiple funds, leveraging institutional diligence and peer benchmarking data, along with institutional monitoring of long-tenure funds, to mitigate risks and provide potential benefits to investors.
Kotak Investment Advisors Limited (KIAL) introduced its fund at a time when there was significant interest from high-net-worth individuals (HNIs) to invest in the private equity (PE) space and startups. Typically, a fund has a specific lifespan and a defined deployment period. In cases where the general partner is unable to deploy the fund as planned, they may return it to limited partners along with any earned fees. It is reported that Kotak has deferred its Fund of Fund (FoF) due to unfavorable market conditions that have hindered meaningful deployment of the fund.
The venture capital (VC) and private equity (PE) markets in India have become attractive for High Net Worth Individuals (HNIs) to invest in, especially after the IPO boom in 2021. A total of 11 Indian tech startups, including Nykaa, Zomato, and Paytm, went public, resulting in significant exits for investors and creating lucrative investment opportunities. However, due to current macroeconomic challenges, startup funding in India has slowed down, with a 75% decrease compared to the same quarter last year, as per Inc42’s ‘Indian Tech Startup Funding Report, Q1 2023’. Despite this, there has been a steady pace of fund launches, with VC, PE, angel networks, and venture debt firms in India announcing or closing funds worth about $2.3 billion in 2023 so far, following the announcement or raising of 126 funds worth $18.3 billion in 2022.
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