Piramal’s Realty private equity fund seeks extension to meet returns expectation

MUMBAI: Ajay Piramal-backed Indiareit Fund has sought consent from investors in its real estate private equity fund for another extension of the product’s tenure by a year. Indiareit Fund Scheme III, which was launched in July 2007, is due to mature in July 2015. The fund was to mature in July 2013 but it had sought investor approval to push the tenure by two years at that time.

In a letter addressed to investors, Piramal Fund Management’s managing director Khushru Jijina said the stated time periods are essential to realise the estimated values, and without the extension, monetisation would become extremely difficult. He believes any shorter time bound liquidation would significantly hamper the residual values. “We laid out and followed an assetwise strategy in order to bring the remaining investments closer to final realisation,” said Jijina in the letter, a copy of which has been seen by ET.

Wealth managers said this copy is yet to be sent to all the investors. Rich investors put money in this fund in 2007— the peak of the previous stock market bull run— as real estate prices were showing no signs of fatigue. Then, the fund raised close to Rs 600 crore. Investors had to shell out at least Rs 25 lakh to participate in the fund. The fund returned 99.83%, or Rs 24.95 lakh, of the total capital called by the fund.

“Though investors made an absolute return of 33%, the IRR from the fund works out to a mere 5.06%,” says Manoj Nagpal, CEO, Outlook Asia Capital. In addition to the low return, there is uncertainty when the balance money will come back. Nagpal said this proved investor expectations from real estate of delivering superior returns compared to other asset classes is incorrect.