Reliance Anil Dhirubhai Ambani Group (R-Adag) is close to raising Rs1,500 crore to set up its first independent, third-party private equity (PE) fund.

Reliance Equity Advisors, the PE arm of R-Adag, is tapping domestic investors such as Life Insurance Corp. of India (LIC) and high net-worth individuals (HNIs) to raise capital in these challenging times. Ramesh Venkat, chief executive officer of Reliance Equity Advisors, is confident of raising the target money by September. The fund, which has a 12-member team, expects to make its first investment next month.

Main theme: Ramesh Venkat says R-Adag will look at areas where it doesn’t have a presence. Ashesh Shah / Mint

Have you made your first close?

We launched our domestic fund-raising programme about six-eight weeks back. It is still work in progress. We are looking at a first close around September-end. We don’t have a firm deadline yet.

We are targeting banks, institutions, HNIs and NRIs (non-resident Indians) to raise Rs1,500-2,000 crore. Adag (R-Adag) will invest Rs300 crore in the fund.

We expect Rs700-800 crore to come from institutions and maybe a little less from the HNIs. Most of the commitments are in the pipeline. With a few institutions, we have already got the commitments. It’s a process that takes time. Many are willing to commit, but you don’t actually see the commitments till the last date. But the indications are very good.

You are currently targeting the domestic market. Why not the foreign market?

The reason we chose the domestic market at this point is because the foreign markets are still quite tentative. The general feeling we got was that first time, emerging market funds may not find it easy to access capital in an extensive way.

So, it makes sense to do a first raise here and thereafter go overseas. One cannot ignore foreign markets because real size can be achieved only when you get there. Once we see some recovery, we will look at fund-raising from there as well.

Do you see domestic institutions emerging as a significant limited partner (LP) class?

I would think so. For instance, LIC has always had an equity culture. LIC has been looking at PE funds for many years now and they have invested in a number of venture capital funds too. For many banks, it’s a more recent phenomenon. Many of them are extremely receptive to this concept.

Domestic institutions would emerge as a major LP class in times to come. Some banks will even set up their own PE funds, which over time, will limit their exposure to other funds. But a majority of them will still want to participate in this asset class by investing in other PE funds.

How will the private equity arm leverage the R-Adag brand?

Through the group’s networks, we have direct access to a large number of deals on a proprietary basis.

We could bring to portfolio companies the group’s expertise in areas such as access to capital markets, expanding to different markets, innovative methods of financing and structuring. In fund-raising too, it makes a huge difference as Adag (R-Adag) is well known in the institutional and retail markets.

What kind of deals will you focus on?

Growth and consolidation will be the main themes. Hopefully, the company we invest in will be the consolidator. We would like to do buyouts, but those opportunities are limited in India.

As the market matures, we expect to find promoters willing to exit. The PE fund would be sector agnostic, but will focus on newer industries like media, logistics, pharma and financial services. It would look at investing Rs150-200 crore in each deal.

Reliance Capital has been making private equity investments from its balance sheet. After the launch of this fund, will that activity continue?

There will be no PE investments from the prop book (proprietary book, which means the investments made by the company from its own balance sheet or its own money). But of course, Reliance Capital does a lot of other investments in primary and secondary markets which will continue.

What is Reliance Capital’s broader alternative investment strategy? Will you look at real estate and hedge funds?

We would like to look at all the opportunities in the financial services space. Reliance Capital is present in practically all the larger financial service businesses.

They are the market leader in most of them like mutual funds, insurance, and now, we have private equity and asset reconstruction arms. We will look at opportunities where we don’t have a presence. We examine them on a constant basis and we will enter those areas when the time is right.

What is your take on valuations at this point in time? Do you think the PE market is overcrowded?

Promoter expectations continue to remain fairly high. That is an issue in the Indian market, although we are finding some deals where valuations are realistic.

While there are many funds operating in India, the competition is still not that much. In most of the deals, we find the same three-four names cropping up. Majority of funds tend to be niche players and not very active.

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