Mid-market growth capital private equity firm Faering Capital, started by Aditya Parekh and Sameer Shroff, has achieved the first close of its second fund—India Evolving Fund II—raising Rs725 crore (approximately $110 million) from domestic investors.
Once a fund achieves first close, it can start making investments.
The second fund, in which Parekh and Shroff are targeting a final corpus of about Rs1,800 crore, will see the duo reach out to foreign limited partners for the first time. Investors in a private equity fund are called limited partners (LP).
“This time we are raising funds from both domestic and overseas investors,” said Shroff. In its first fund, Faering strategically avoided raising offshore money, he added.
“We wanted to stay close to home, develop a track record, show exits. Now that we have achieved these, we are going for raising an offshore fund.” Faering’s first fund, raised in 2009 with a corpus of Rs800 crore, relied entirely on the domestic LPs.
Shroff said the first close of the second fund was achieved in just a few months. Faering plans to launch the offshore fundraising by October end. Faering’s success in raising funds has come on the back of the track record of its first fund, he said.
“The first fund is currently tracking a gross IRR (internal rate of return) of 26%. Investors are also attracted by our track record of investing in notable market-leading companies such as RBL Bank, Biba Apparels, Enamor, Manipal Healthcare, Snowman Logistics and NSE,” he said.
The fundraising efforts of the private equity firm are also being aided by strong tail winds on the exit side. The fund has recently exited two of its portfolio firms—RBL Bank Ltd and Snowman Logistics Ltd—and has, in the process, returned a significant amount of capital to its LPs.
“We have sold 48% of our stake in RBL Bank after the IPO and we also sold our stake in Snowman, where we made a 40% IRR. Just on these two exits, we have returned a third of the capital to our investors,” said Shroff.
In all, Faering has seen two partial exits and one complete exit from its first fund, which had a portfolio of 15 firms. The fund has lined up more exits, while it also has liquidity in several of its investments.
“By June (2017), our plan is to return 100% of the capital drawn down from the investors,” said Shroff.
NSE, its portfolio firm, is moving towards an IPO, which will create liquidity for Faering’s investment.The first fund is also invested in a couple of listed firms—City Union Bank Ltd and M&M Finance Ltd— where, according to Shroff, Faering is already sitting on 2x of its invested capital. The firm will exit these investments at an opportune time. “There is a lot of liquidity in the portfolio and there is a lot of inbound interest in some of the other portfolio companies,” he said.
While the second fund is more than twice the size of the first, the firm plans to continue with its strategy of mid-market growth capital investment in the range of up to $30 million in ticket size.
