MUMBAI: A growing number of Indian alternative investment funds are expanding their private credit business, filling a void left by banks and non-bank lenders and mirroring a pick-up in activity across Asia.

Private credit funds typically invest in debt or hybrid securities of unrated and lower-rated companies.

Kotak Alternate Assets Managers (KAAM), Edelweiss Alternatives Asset Advisors, InCred Alternative Investments and Vivriti Asset Management are all looking to increase the size of such funds or raise new funds, officials at these firms said.

"The wholesale lending space has been vacated by banks and mutual funds are wary of the space, while insurance companies blow hot, blow cold," said Lakshmi Iyer, head of investments at KAAM, which closed an 8 billion rupees ($96.7 million) private credit fund.

"This a space where alternate asset managers like us are finding opportunity."

Edelweiss Alternatives has invested 359 billion rupees in private credit and is looking to launch its next real estate credit fund.

Vivriti Asset aims to add 15 billion rupees to the roughly 35 billion rupees it already manages in private credit, managing director Vineet Sukumar said.


Such deals totalled $5.3 billion in 2022, according to EY.

Most recently, Rattan India Power and a Shapoorji Pallonji group entity Goswami Infratech raised money from such funds.

"While our earlier focus was on providing capital at a holding company level, we are now also witnessing an increasing trend of operating companies approaching alternative lenders like us for growth capital," said Amit Agarwal, head of special situation investing at Edelweiss Alternatives.

While there is a lot of interest in this space, deals have been difficult to close as pricing doesn't adequately reflect the risk, said a credit market participant who declined to be named as he is not authorised to speak to the media.

Since mutual funds and non-bank lenders are vying for credit-rated "AA" and "A", the "A-" and "BBB"-rated businesses are seeking private credit, this person said.

Private credit funds lend to these companies at 12%-18%, splitting transactions into tranches. The riskiest of such credit can yield up to 20%-24%.

The risk of default, however, is higher and exits can be difficult since these securities are often illiquid.

"On a macro level, we ensure that a single deal never crosses 5% of our portfolio and try to structure all our deals where we will get regular cash flows from borrowers," said Ankur Jain, managing director at InCred Alternative. (Reporting by Bhakti Tambe; Editing by Savio D'Souza)