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We're focused on mid-income housing projects in top 5 cities: Amit Bhagat

Raghavendra Kamath/ 28 Jun 12 | 12:41 AM

On Monday, Mumbai-based ASK Group announced the final closure of its Rs 1,000-crore domestic realty fund, one the highest mop-ups by property funds in the last four years. Amit Bhagat, managing director and chief executive officer of ASK Property Investment Advisors, in an interview with Raghavendra Kamath, talks about the fund-raising exercise and the fund manager’s strategy. Edited excerpts:

Who were the investors in the new fund?
They were the same set of high net worth investors (HNIs). We had committed to our investors a strategy that focused on mid-segment housing, selection of locations and prudent developers. It also focused on risk management. Since this is appreciated by investors, 60 per cent of investors are those who had invested earlier as well. They have increased their commitment twice. HNIs are the main investors.

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By when would you deploy the entire Rs 1,000 crore?
We will be able to commit it in the next two years. We have already committed 20 per cent.

How easy, or difficult, was it to raise the new fund, compared to the last one?
Investors are very careful. They want to make sure the money is going into the right hands. It took nearly 18 months to raise this fund. We announced the first closure in June 2011. We took nine months to close the previous fund, which was much smaller (Rs 326 crore). However, that was raised in 2008-09, when market conditions were tougher. It was much easier to raise the current fund and investors gave more money.

What internal rate of return (IRR) do you expect from this fund?
We are looking at an IRR of more than 25 per cent. We are equity players; we take equity risk and expect equity returns.

What kind of properties would you invest in with the new fund?
We have retained the strategy we had adopted for the first fund — investing in the top five cities, mid-income housing projects and prudent developers, and avoiding extended suburbs and long-gestation projects. We think it is the only way to manage risks in the current volatile market conditions. Our partners — Godrej in Mumbai; Sushil Mantri group and Real Value in Chennai; Paranjape, Amit Enterprises, Darode and Jog in Pune and ATS infrastructure in Noida — are developers with 15 to 30 years of experience in the markets they operate in. We stick to our basic philosophy and do not experiment with investors’ money.

What are your future plans?
We will launch an offshore fund once we commit 40 per cent of this fund, which is in three months. By the time we raise the offshore money, in 12-18 months, we would have committed 80 per cent of our domestic fund.

What would be the offshore fund corpus?
$250 to $300 million

Homes sales have declined significantly in key markets such as Mumbai and the national capital region. Doesn’t this worry you?
No, we are not worried. Our first fund was invested over the last two years. We are not in a hurry to invest. We invest for three to four years and do not expect returns in six months or a year. We are not trying to time the market. We invest in projects with adequate margins of safety. In projects in which prices are about Rs 5,000 per sq ft, even if prices drop 10 per cent, money could still be made.

How have the returns from your first fund been?
These stood at 30 per cent IRR, in terms of both exit and valuation, for all investments. We earned 54 per cent IRR from the first exit in a Noida project in which we had invested Rs 50 crore and earned Rs 121 crore.

Why did you choose to divide the fund-raising exercise into two parts? Was it becoming difficult to raise it at one go?
It is a market practice. Also, during the initial closure, large investors step in, while retail investors follow during the final closure.

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