Axis Asset Management, the mutual fund division of Axis Bank has recently launched a credit fund with the objective of raising up to Rs 1,250 crore from a diverse group of investors. This strategic initiative is, in line with their approach to assets focusing on supporting profitable enterprises in need of debt capital, for various purposes. The initial phase of fundraising is expected to conclude within weeks.

Axis Asset Management launches Rs. 1250 crore private credit

Axis Asset Management, the mutual fund arm of Axis Bank Ltd, has introduced a private credit alternative investment fund (AIF), with sources indicating an ambitious goal of gathering up to Rs 1,250 crore from potential investors.

This private credit fund forms a vital component of Axis Mutual Fund’s diversified alternative assets portfolio. The encompassing array includes late-stage private equity and real estate AIFs within the realm of private markets. On the flip side, it features portfolio management services and long-only equity AIFs within the public markets domain. Managing a substantial corpus of around Rs 5,000 crore across these diverse asset classes, Axis maintains its foothold.

Notably, private credit funds play a pivotal role in supporting profitable enterprises that generate positive cash flows. These businesses often seek debt capital for specific purposes, which traditional banking institutions might be constrained from financing. These objectives encompass activities like facilitating merger and acquisition ventures or enabling promoters to buy out existing shareholders.

Discussions with various institutional investors, such as banks, insurance companies, and corporate treasuries, are reportedly underway to facilitate the fund’s initial closing. This initial phase is anticipated to materialize within the upcoming four to six weeks, with the possibility of engaging family offices as well.

In terms of its scale, the fund is projected to have a foundational size of Rs 1,000 crore, supplemented by a green shoe option of Rs 250 crore. Preliminary estimates suggest a first closing target of approximately Rs 500 crore.

While Axis had previously launched a smaller private credit fund with a corpus of Rs 200 crore as a proof of concept, the current initiative signifies a substantial expansion, with a focus on attracting institutional investors.

The forthcoming fund adopts a sector-agnostic approach, seeking to generate attractive gross yields in the range of 13-14%, as emphasized by insiders familiar with the matter.

This move by Axis into the private credit fund space coincides with a period of increased activity in the Indian alternative investment landscape, particularly within the private credit sector.

Several prominent financial institutions, including Kotak Alternate Assets Manager, JM Financial, InCred Capital, ASK Group, Vivriti Capital, and notable private equity fund managers like True North, are currently navigating the market with their own private credit fund offerings.

A notable factor driving this heightened interest in private credit is the recent shift in taxation dynamics. The landscape was transformed after the removal of long-term tax benefits on debt mutual funds in March. This change created a level playing field and ignited greater investor attention toward the private credit asset class.

Despite the flurry of fund launches, significant untapped potential remains within the private credit arena. As indicated by sources, the credit risk mutual fund space, which stood at Rs 1.25 lakh crore AUM in 2019, has now contracted to less than half of its previous size. Moreover, NBFCs have also exhibited decreased involvement in such transactions.

In conclusion, Axis Asset Management’s entry into the private credit fund arena aligns with a broader trend of increased interest and activity within the Indian alternative investment sector. The evolving landscape, coupled with the removal of certain tax benefits, has catalyzed a renewed focus on private credit, with multiple market participants vying to harness its growth potential.