Mumbai: Yes Bank Ltd has drawn up plans to launch four private equity (PE) funds, aggregating a corpus of $1.5 billion (Rs5,955 crore), in the next three years. The Rana Kapoor-backed private sector bank will raise a $500-750 million infrastructure fund, a real estate fund and distressed asset (special situations) fund of $350 million each, and a $150 million fund focused on socially responsible investments.

Yes Bank chief executive Rana Kapoor.

The bank is also working on three other funds, outside the $1.5 billion corpus, for life sciences, food and agriculture businesses, and SME growth/buyout deals. These funds will potentially have a $600 million aggregate corpus and are sponsored by other parts of the bank, although they may be rolled up into a single entity.

Yes Bank started operations in 2003 and was listed on the public markets in 2005. For more than two years, the PE space has been flooded with new funds from banks and non-banking financial institutions, both domestic and foreign. Among domestic banks, the formidable entrants have been institutions such as ICICI Bank Ltd and Kotak Mahindra Group. Both have been in the game since the late 1990s. New entrants are bullish as the number of PE deals in 2007, as of the first week of September, exceeded the deal volume for 2006.

The proposed infrastructure fund will focus on water supply, roads, airports, highways and ports. It will also look at up-and-coming construction companies and niche ancillary businesses such as road maintenance. “There are undiscovered gems," said Ghosh. The fund will seek to invest in construction and then list the project on the public markets as was done with Noida Toll Bridge Co. Ltd.

The real estate fund will bet on office space catering to the information technology industry and mass residential housing. The fund may deviate from the typical PE fund structure and raise money by listing on an alternative market, such as London Stock Exchange’s Alternative Investment Market (AIM). Ghosh said the upside of this method is that the capital can be raised quickly, but the funds must be deployed in 18 months.

The distressed asset fund is one piece of the bank’s strategy for this segment. Yes Bank has received the first level of approvals from the Reserve Bank of India (RBI) to set up an asset reconstruction company. The bank is in talks with a blue-chip US investment bank and three domestic banks for the company. Yes Bank already offers banking and investment banking services in this domain.

For investments based on social responsibility, the bank will reserve about 10% for equity micro finance investments and socially relevant businesses. The remainder will go into “green" investments.

It has tied up with Washington, DC-based private equity firm Global Environment Fund (GEF) to look for clean technology and environment-related deals in India, currently out of GEF’s global fund.

“We do not have a local office, so they will be here doing due diligence, and some origination and execution of deals," said Sanjeev Krishnan, senior associate and India lead for GEF (read accompanying interview with Krishnan).

The partnership may lead to a joint energy and environment fund.