Edelweiss seeks up to $1.5bn for stressed assets fund

The Indian manager held a $260m first close in December, in addition to raising $600m from LPs across separately managed accounts.

Edelweiss Group, an Indian financial services company, has set a fundraising target of up to $1.5 billion for its second stressed assets fund and aims to hold a final close in July this year, Private Equity International has learned.

“Edelweiss India Stressed Assets Fund II was launched in December last year and reached a first close on $260 million by year-end,” Nitin Jain, chief executive, Global Wealth & Asset Managemen, told PEI. “We have raised a total of $860 million to date, of which $600 million is in separately managed accounts.”

Jain noted the firm has made a $200 million GP commitment to the fund.

Fund II, if closed on its intended capital raising target, will be almost 20 times larger than its predecessor, which raised $77 million in 2013 and is fully deployed.

Jain explained that the jump in fund size is in line with how the industry expanded. “Most of the activity in the distressed space picked up in India only after Indian economist Raghuram Rajan introduced the Asset Quality Review for banks in 2013, after which we witnessed investments in the distressed space picking up. Back in 2011, when we launched EISAF I, it was a newer asset class for most institutional investors, and hence we saw limited flows coming into India,” he said.

Jain noted EISAF I is on track to deliver between 20 percent and 22 percent Indian rupees returns. Meanwhile, the firm is targeting about 24 percent IRR for EISAF II.

“There’s a lot of interest and excitement about stressed assets in the country now. There are a lot of assets and not enough capital available. We don’t want to be in many small deals nor do we want to be in the large-sized deals. We like control deals in which we invest not more than $150 million per deal,” he pointed out.

Explaining the factors creating increasing stressed assets buying opportunities, Jain explained: “I think the enforcement environment has improved dramatically because of recent reforms such as the Insolvency and Bankruptcy Code. And there is a sense of urgency from all stakeholders including banks and the government; capital markets have also been very friendly. It’s as if the entire machinery is working together to solve India’s bad debt problem. I am pretty optimistic that the fundamental credit culture of this country is likely to change meaningfully through efficient capital allocation.”

The firm sees opportunities in India’s steel and power sectors. Its current portfolio also includes investments in textiles, real estate, cement and hospitality, including in Star Paper Mills and Adhunik Power & Natural Resources.

Edelweiss’s global wealth and asset management division has over $20 billion in assets under management across equities, debt and alternatives. Its investor base includes global institutions in Scandinavia and North America as well as corporates and business families in India.

In 2016, Edelweiss teamed up with Caisse de dépôt et placement du Québec, to invest between $1.8 billion and $2 billion into private debt and restructuring of stressed assets in the country.

The firm also manages the Edelweiss Asset Reconstruction Company, which captures a more than 50 percent market share in India’s asset reconstruction business, according to media reports.