Mumbai: Avenue Capital, a global asset manager focused on distressed debt, is in talks to buy a significant stake in FIRE Capital, the first domestic real estate fund registered with the Securities and Exchange Board of India (Sebi), said two people familiar with the development.
“FIRE Capital has well passed the end of its fund life and has not been able to exit from its investment. It is in talks with Avenue Capital to sell assets in a secondary transaction,” said one of the people.
“The deal size could be in the range of $100 million,” the second person said. Both declined to be identified.
Spokespersons at both Avenue Capital and FIRE Capital declined to comment.
A secondary transaction refers to the buying and selling of an investor’s ownership in a private firm often backed by venture capital or private equity firms.
Investment stakes can be sold in a single company or across an entire portfolio of companies. Funds that acquire direct portfolios of venture capital or private equity investments are called direct secondary funds.
It is common for limited partners (investors who put money into private equity and venture capital funds) to sell their stakes in the secondary market, but it is not so common for a general partner, or the manager of a fund (the private equity or venture capital firm itself), to sell its stake, an expert on the private equity sector said on condition of anonymity.
But there are enough reasons to do so, the expert added.
“Achieving liquidity at the optimal time for maximizing internal rate of return; reducing concentration risk and locking in early returns; reallocating and retooling investment strategy; eliminating non-strategic investments; and creating strategic partnerships to share investment risk and return are some of the reasons for GPs (general partners) to sell stake in their funds,” said the expert.
Founded in 2004, the FIRE Capital Fund takes strategic equity stakes in real estate development projects and targets investments in residential projects, multi-use projects centred around residential use, office complexes, software technology parks, retail malls and leisure and entertainment projects.
FIRE Capital Fund is particularly interested in suburban metro locations, Tier-II and Tier-III cities, according to its website.
In 2011, promoters of FIRE Capital and a few US-based professionals set up Astrum Homes to develop mid-income housing projects in smaller cities, before switching focus to the National Capital Region centred on Delhi.
In small towns, it worked with local partners who had land banks, acting as a capital provider.
Projects FIRE Capital has invested in include Silver Springs Township (Indore), The Empyrean (Bengaluru), The Empyrean (Nagpur), IndiCity (Jaipur) and Omshakthy Kanopus (Chennai).
Avenue Capital was founded in 1995 by Marc Lasry and Sonia Gardner, regarded as pioneers in the distressed debt market. Lasry and Gardner have invested in the public and private debt and equity securities of distressed companies across a variety of industries for over two decades.
Based in New York, with offices in London, Luxembourg, Madrid, Milan and Munich, and five offices across Asia, the firm manages assets estimated at $10.8 billion as of 31 August 2016.
Note: The news of the Fire Capital’s possible sale, with no mention of the likely buyer, was first reported by VC Circle in May
