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Private equity (PE) firm Kedaara Capital Advisors Ltd, co-founded by PE veteran Manish Kejriwal, is gearing up to float its second fund to raise around $600-650 million, two people familiar with the matter said. The formal process is expected to begin by mid-2017, one of the persons said on condition of anonymity.

Kedaara was founded in 2011 by Kejriwal, former India head of Singapore sovereign wealth management fund Temasek Holdings Pte. Ltd, Sunish Sharma and Nishant Sharma, who were managing director and principal, respectively, of global PE firm General Atlantic in India.

The PE firm raised its debut fund with a corpus of $540 million in 2013, in one of the largest fund-raisings by an independent, home-grown PE platforms until then.

Originally targeting $500 million, the fund was oversubscribed, attracting investors from all over. Canadian pension fund Ontario Teachers Pension Plan anchored the vehicle and was joined by other sovereign wealth funds, pension funds, family offices, fund of funds and endowments.

On its second outing, the PE firm is currently sending feelers to prospective limited partners (LPs), or investors in investment funds.

“They are initiating soft conversations with prospective LPs now and will embark on a formal fund-raising process only by mid-next year," said the first person cited above on condition on anonymity.

The move to launch a second fund comes on the heels of two stellar exits recorded by the firm.

“They have registered stellar exits in a short frame of time. They have made about 75% IRR (internal rate of return) in Au Financiers and about 55% IRR in Bill Forge," added the second person.

In September, automotive components supplier Mahindra CIE Automotive, a joint venture between Mahindra Group and CIE of Spain, agreed to acquire a 100% stake in Bengaluru-based machine components manufacturer Bill Forge, for about $200 million.

Kedaara, which acquired 50% stake in Bill Forge last year for around $48 million, exited completely. In June, it exited Au Financiers Ltd, a retail non-banking financial services company and one of the 10 firms to receive in-principle approval to start a small finance bank.

A report in VCCircle said that foreign investors sold their holdings in Au Financiers in part or full in a deal worth $110 million to help the latter bring down the foreign holding to 49% from 64% to comply with one of the prerequisites for a small bank licence.

When contacted, Kedaara’s co-founder and managing director Kejriwal said, “We do not comment on market rumours."

Both Kedaara’s recent exits have been quick compared to the usual PE investment horizon of three to five years.

The speedy exits by Kedaara could well be a good thing for the PE firm. A recent study by McKinsey & Co.’s Private Equity and Principal Investment Group showed that PE returns drop as holding periods increase. According to the study, PE investments with holding periods of between one and three years delivered above 40% return, higher than any other holding period.

The performance on exits shown by Kedaara also comes at a time when the Indian PE industry, notorious for its poor exit performance, has witnessed over $16 billion worth of exits in the past two years.

According to data from Venture Intelligence, so far in 2016, PE funds have registered exits worth $6.7 billion, while in 2015, PE funds recorded exits worth $9.4 billion. The 2015 exit performance was the highest in the past five years.

Kedaara’s debut deal was an investment of Rs200 crore in Mahindra Logistics Ltd in April 2014. It has also invested in companies such as Parksons Packaging Ltd and Manjushree Technopack. Its latest investment was the buyout of Au Housing Finance, the mortgage arm of Au Financiers, along with Swiss PE firm Partners Group, for around $140 million.

“The private equity firm is about 55% committed across six investments which is about $300 million and has invested across sectors," said the second person cited above.

Kedaara positions itself as an operationally oriented PE firm pursuing control and minority investment opportunities in India. It has a strategic partnership with Clayton, Dubilier & Rice, a pioneering global private equity firm.

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