Kotak PE arm plans $2 bn fund amid rising private credit demand

The Kotak Mahindra Group's private equity arm plans to lend ₹800-1,000 crore to 12-15 growth-stage companies seeking tailored credit solutions, Eshwar Karra, the firm's deputy managing director, said in an exclusive interview with Mint.

The asset manager is in talks with global investors, including sovereign wealth funds and pension funds, in line with its previous strategies. This time, however, it also plans to raise a portion of the corpus from domestic institutions. Its KSSF I and II were sized at $1 billion and $1.5 billion, respectively.

“We also see strong demand from domestic institutions this time," said Karra. “Credit remains Kotak’s mainstay—our domestic underwriting capability has consistently been stronger than most other managers, including banks. Our NPL (non-performing loans) levels have traditionally been much lower than the industry average," he added.

To be sure, Avendus Capital Pvt. Ltd and Neo Wealth Management Pvt. Ltd, among others, have also recently announced new credit funds, while global asset managers such as Blackstone Inc., Bain & Co., and Carlyle Investment Management Llc have been seeking opportunities to deploy their credit strategies in the country.

The first KSSF made a total of 14 investments, including in Kiran Mazumdar Shaw-led Biocon Ltd, speciality chemicals firm DCW, listed cement player Sanghi Industries Ltd, and stressed asset HKR Roadways Ltd, owned by a consortium led by the Gayatri group, among others.

The second KSSF fund's notable investments included API manufacturer Matrix Pharma Corp., diagnostics services provider Neuberg Diagnostics and medical device maker Biorad Medisys.

Credit business

KSSF III adds to the PE firm’s expanding credit strategy, following the launch of the Kotak Yield & Growth Fund (KYGF) on 30 September — a differentiated strategy aimed at delivering stable, credit-led yields while offering targeted growth participation through structured solutions.

Karra said the KYGF corpus is expected to be around ₹4,000 crore, raised mainly from domestic institutions and domestic high-net-worth-individual clients. “This will have a mix of infrastructure yield-producing assets, as well as infrastructure credit growth," he said.

Kotak Alternate Asset Managers currently manages approximately $10 billion in assets under management, with over 120 investments to date. A significant portion of its strategy is focused on private credit, with allocations to PE investments through its pre-initial public offering, listed equities, and life sciences funds.

It is also in the process of raising its life sciences fund, which is expected to close in the next 3-4 months at about ₹800-1,000 crore. “We will make about 15-20 transactions in the ₹25-40 crore range," said Karra. “We’ve made about 20 proprietary investments, and many of them need larger funding as they scale. We can warehouse some, but it requires arm’s-length pricing and caution. If another round comes in, we can participate, but our focus is on primary investments to avoid conflicts."

The fund made its first close at ₹250 crore in January.