Rationale for the Fund
Of the total AUM, 90% is invested in government securities or AA and above rated debt securitiesThe Life Insurance sector in India has grown many folds with a current AUM of over USD 4 trillion. . A higher proportion of low yield debt investments plus declining bond yields have made it harder for insurance companies to deliver attractive returns to their policyholders. This Fund provides a unique proposition to insurance companies who wish to purchase assets commensurate with their liabilities without comprising on yield and provides a rare high-yield long-tenure non-sovereign debt managed product. The Fund seeks to achieve this by delivering premium returns over long term government securities providing an opportunity to invest in high-quality growth companies which cannot be accessed directly owing to the relatively underdeveloped bond market in India.
Funds seek to increase the share of formal finance by financing high-quality originators
The debt funding available to India’s financial inclusion sector is lopsided with institutions facing an incomplete capital market structure. Most of the debt funding, when available, is short term in nature and sourced from banks. For instance, while the microfinance sector in India has grown from about USD 500 million in 2007 to USD 10 billion in 2016, the amount of funding raised by microfinance institutions by issuing bonds in the corporate bond market is small. The Fund tackles this problem by tapping bond markets to meet long term funding requirements. This not only leads to diversification in sources of debt capital for our investee companies but our fund structure with 10 year close ended tenure also allows us to provide differentiated debt capital that acts like catalytic growth capital. This also brings down the systemic risk in sectors where the fund invests in.
The broad contours of the Fund are as follows,
|Investment Objective||To earn higher risk-adjusted returns by investing in a portfolio of debt instruments across multiple sectors. The Fund will target to better the debt market yield curve by actively managing the portfolio while maintaining adequate diversification|
|Issuer||A proposed Category II Alternative Investment Fund (AIF) registered with SEBI|
|Target size||INR 200 crores (excluding green shoe of INR 150 crores)|
|Target returns||IRR (net of all expenses) for Senior Investors ~ 350-400bps over 10Y G-Sec|
|Management fee||A fee of 1.5% will be charged to the client as fund management and risk monitoring services|
|Tenor and Maturity||10-year, close-ended (including redemption timeline)|
|Payouts||Periodic payments: Quarterly surplus payouts
Principal: Bullet repayment
|Nature of investments||Investments will be made in rated senior secured bonds, unsecured bonds, sub-ordinated debt, redeemable preference shares, commercial papers, PTCs, liquid debt funds and other instruments permitted by extant regulations|