Development Bank of Japan has invested in HDFC Capital’s Development of Real Estate Affordable and Mid-Income Fund (H-DREAM Fund), which is targeting $500 million for affordable green housing in India.
The H-DREAM Fund is currently anchored by the International Finance Corporation and has secured $350 million in commitments so far, including from DBJ and several Indian institutional investors. It has a greenshoe option to raise an additional $500 million and aims to close the fund fully by the end of this year.
It also marks the first time the Japanese government-backed DBJ has invested in a real estate private equity fund in India.
According to Vipul Roongta, CEO and managing director of HDFC Capital, institutional LP interest in India is among the strongest that he’s seen as investors search for high-growth opportunities to diversify their portfolios.
“In my career, I have not seen the kind of ecosystem that I’ve seen in the last one and a half years. I have probably had more discussions in this calendar year than I’ve had cumulatively in the last five years,” Roongta said in a video interview with PitchBook.
He added that apart from Japan, LPs are also coming from the Middle East, Europe and Canada. However, this also means that GPs like HDFC Capital ultimately have to benchmark themselves very competitively if they want to win the kinds of institutional LPs worth winning.
While India has long promised to be a high-growth market for yield-hungry investors, many foreign investors have been burnt by rupee depreciation, corporate governance issues, and other regulatory and policy risks.
“The single thing that everyone is asking for is—give me the best risk-adjusted return. I can very pointedly say that we are competing with every fund manager that exists globally because we believe that to make it big in India, you need to lower the risk, especially in the mid-risk segment,” Roongta explained.
“We know we are not competing with the hedge funds, we are not competing with the small caps. We are also not competing with the big banks of the world. [But] we are asking ourselves, how can we cut risk in a high-growth economy like India? Can we cut the risk on real estate? How can I make sustained returns at scale? So achieving sustained, mid-risk returns at scale is the objective for us,” he added.
HDFC Capital currently generates 12-14% net returns in dollars across its $4.5 billion portfolio. Based on its track record, the firm hopes to double its AUM to $9-10 billion over the next three to four years.
HDFC Capital is the real estate private equity arm of HDFC Group and a subsidiary of HDFC Bank. The Mumbai-listed bank is among the country’s largest private-sector lenders with a market cap of more than $120 billion.
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