The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
The Kotak India Infrastructure and Realty fund will invest in equity and equity-related instruments. The fund is expected to invest primarily in cement, construction and materials, industrial engineering and machinery, industrial goods and services, oil and gas, power, ports and shipping, real estate, road and railway, telecommunication and urban infrastructure development.
ôIn almost all the sectors barring the telecom sector, currently the participation by the private sector is just in the initial phase and thus represents massive opportunity across sectors,ö says Nitin Jain, who will manage the fund from Dubai. ôAs private participation in a project evolves from a mere contractor to an asset owner or developer, maximum value gets unlocked.ö
Jain notes that sectors related to infrastructure and realty are at various phases of evolution in India. He believes that certain sectors like power generation, transmission and distribution; roads, airports, and urban infrastructure will be the biggest beneficiaries of infrastructure spending.
India is among the fastest growing economies in the world today. The government of India now estimates that investment in infrastructure will need to increase to 8% of gross domestic product in 2012 from the current 3.5% to support the countryÆs overall growth. The government anticipates a requirement of around $ 475 billion in infrastructure investment over the next five years.
ôWith huge investments planned in the infrastructure sector, companies engaged in this sector could witness impressive growth,ö Jain says.
When picking stocks to include in the portfolio, Jain says he will be looking at a combination of valuations, market capitalisation and the companyÆs track record, among other things.
ôValuations will be closely watched but we believe that a lot of infrastructure related entities have significant embedded value within their portfolio,ö he says. ôThe fund will not have any market cap bias. Some of the businesses are in the initial stages or are niches and as such the companies involved may have small capitalisation but the growth potential could be very large.ö
Since the fund is thematic and targets a very wide theme of infrastructure, the fund will have a slightly higher risk profile than a diversified fund and a slightly higher volatility than the broader stock market in India.
However, Jain believes that the higher growth opportunity will more than compensate for the slightly higher risk.
ôAs per our calculations, if in the next five years, infrastructure funding has to move to 8% of GDP and the nominal GDP growth rate ranges between 12.5-14%, then the compounded sales growth for the infrastructure and realty theme should be anywhere between 22-30% per annum,ö Jain says.
Most of the companies already have large order-books, some spanning four to six years of current year revenues, giving a good picture of future demand, Jain says.
Some companies have also incubated new businesses over the last few years and these will further unlock value in the coming years, he adds.
The fund will be sold directly to institutions and some family offices through Kotak Mahindra (UK) LimitedÆs own sales force. The company will be reaching out to high net worth individuals through private banks and independent financial advisors in various markets.
The target size for the fund at its initial close on 31 October is $150-$200 million. However, the fund is an open-end fund and will be open to investors at net asset value price after the close of the initial offering period. Minimum investment is $100,000.
Kotak Mahindra (UK) Limited already has investments in Indian infrastructure stocks, which make up around 40% of the India-focused companyÆs total portfolio. The company is registered with the Securities Exchange Board of India as a foreign institutional investor.
In its second annual sustainable investment report, the sovereign wealth fund says it invested $1.79bn in ESG bonds. Experts say asset owners next need to consolidate their standards.
Senior executives at the Taiwan financial group and Canadian pension fund believe that companies have to make an ESG transition, and may not have a choice in a few years.
Record low borrowing costs in Australia are feeding demand for the country's real estate, with domestic and global investors raising their allocations into the sector.
Experts have a diversified view on the appeal of private assets across the region, but one thing's for certain - inflows are rising, particularly into China and the US.