Illustration: Sameer Pawar
The year was 2009. Indian real estate was in a shambles, as were real estate private equity funds, especially foreign ones, which provided an opportunity for homegrown firms to launch their funds. One of them was the Aditya Birla Group-backed Aditya Birla Real Estate Fund (ABREF).
In 2010, ABREF raised ₹1,056 crore; but in August 2018, when the fund’s lifecycle came to a close, it was yet to exit most of its investments or return even the principal amount.
ABREF was raised by Aditya Birla Sun Life AMC Ltd, previously known as Birla Sun Life Asset Management Co Ltd. The fund’s documents show that it was primarily raised on the assumption that demand for residential realty would reach 7.5 million units by 2013, led by Mumbai, Bengaluru and Hyderabad.
By 2015, the fund had invested 44 percent of its capital in Mumbai and 28 percent each in the National Capital Region (NCR) and Chennai. It had a mandate to invest in equity, equity-related and debt instruments of companies engaged in construction and development of real estate assets, including residential, commercial, retail and other projects. It, however, invested only in residential projects.
Ironically, though, even as the fund’s private placement document says “residential realty—the juicy bit”, there is no juice for the investors of this fund.
According to documents accessed by Forbes India, ABREF’s life tenure was six years, with two one-year extensions, which ended this August. It was a close-ended fund, meaning the capital had to be returned by the end of its life. In August, ABREF notified its investors that due to the global financial crisis and subdued real estate markets, coupled with a liquidity crunch, the fund had been unable to liquidate its position and return capital to investors. And that they were seeking an extension.
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Fund extensions in the real estate sector aren’t uncommon, where exits have been difficult to come by. But the fund has been able to fully exit only three of its 13 investments. Besides, it has been consistently delaying returning capital to investors on committed dates since August, says an investor in the fund who did not wish to be identified.
“Only 19 percent of principal has been returned over an eight-year period, wherein both fund extensions have been exhausted. Normally, a fund reserves extension periods only to ride out the winners and maximise the internal rate of returns [IRR],” says the investor. “Several payouts were promised in August and September, which have not materialised and the delay has not been explained. Many projects are running one to two years behind on servicing debt, and the fund level IRR is not likely to be positive.”
The fund’s investor letter on August 7 says that till date it has returned ₹564.93 crore from all its exits, which include principal and gains from these projects. Over the lifetime of the fund it has made 13 investments of ₹1,056 crore, of which it has exited three investments fully and two partially.
(This story appears in the 07 December, 2018 issue of Forbes India. To visit our Archives, click here.)
ABRE is very poorly managed company. Their series 1 fund has lost a lot of money for the investors (me being among them). Big promises and fancy presentations backed by the Aditya Birla name was an attraction for many of us who invested. Now 7 years later with an estimated 50% loss of capital, they\'re looking to start a Series 2 fund, I would stay away like the PLAGUE from this company and poor management. The only thing you know for sure if that management will take it\'s management fee \"cut\", returns are a dream. At this time we get our capital back after 7 years we will be happy.
on May 21, 2019I am an investor in ABREF Fund-I. After 10 years of investment we are not sure when we will get our capital back. Fund Managers are not maintaining transparency in disclosing the status of their investments. When they have invested in real estate securities at coupon rate of 20-25% return, where is the scope of loss? They are not disclosing their actions on legal redressal , nor it appears they are interested except for distress sale of entire investment and put its small investors like us in great financial loss. Kindly suggest some remedial measures we can initiate to realise at least a return of 10.5% i.e. MCLR plus 2% ,on our investment from this inefficient management of ABREF? REGARDS.
on Jun 3, 2019The fund has failed to deliver the desired returns. There has been massive capital loss of about 43% on principal amount. The investors in this fund should join together to approach the agencies i.e. SEBI, EOU, SFIO etc. to get justice.
on Nov 26, 2019