ArthVeda to raise INR 2,000 cr fund, targets affordable housing projects

ArthVeda Fund Management, a part of Dewan Housing Finance Corporation (DHFL), India's second largest private housing finance company, is raising INR 2,000 crore through its new fund series 'Asha' to invest in affordable housing projects across the country.

The fund is being raised in tandem with Aadhar Housing Finance, which is a joint venture between the International Finance Corporation and DHFL. To begin with the company plans to raise the funds from domestic investors.

The fund will later be opened to offshore investors after ArthVeda concludes raising its ongoing US$250-mn offshore fund christened Star II. ArthVeda is an asset management company which specializes in making investments in the low and mid-income group housing projects.

The objective of ArthVeda is to manage funds that offer ample opportunities for extracting alpha, i.e. high risk-adjusted returns. The company believes in "Value Investing" and predominantly follows this principle in all its investment-decisions across asset classes.

The company's first fund (DREAM Fund-1) which focused on real estate has seen six exits and achieved an IRR ranging between 20 and 45 percent despite a challenging economic scenario.

The remaining seven investments are slated for exit within the next two years. ArthVeda STAR, the second fund of ArthVeda, is focused on mid-income housing in Tier II/III cities.

As part of its plan for the new fund series, ArthVeda will first raise smaller funds in the range of INR 250-400 crore. According to company sources, the Asha Fund has been in the planning stages for a while now, subsequent to the success of the company's earlier affordable housing fund - Star Fund - that targeted middle-income households.

The company hopes to have approx INR 2,000 cr under management at the end of two years. Slated to target institutions and high net-worth individuals in the domestic market, the fund expects to complete the series in about a year's time.

In keeping with its plans, the company has already applied to the Securities and Exchange Board of India (SEBI) for a change of status for its Asha Fund series from category II to AIF Category I.

What makes the launch of this fund targeting affordable housing important is its timing, coming close on the heels of the launch of three flagship schemes by the government for creating adequate stock of affordable homes in the country and developing a strong network of urban infrastructure across cities.

According to company sources, given the government's focus on affordable housing and infrastructure development, the response from investors to the new fund is expected to be strong.

Further the company is also said to be working in tandem with leading NGOs and social impact investors to design a range of market-based solutions that will strengthen low-income households.

The new Asha series is ArthVeda's fourth fund since the launch of its dreams Fund in 2007. Aadhar Housing Finance Ltd (AHFL), a mortgage finance company exclusively for low-income households is a joint venture between DHFL and Washington-based IFC formed in 2010.

According to Deo Shankar Tripathi, the CEO of Aadhar, the coming together of his company with its expertise in lending to low-income households and ArthVeda, which specializes in managing investments in affordable housing projects has created a unique combination which is likely to create a powerful channel to attract the much-needed private equity into the affordable housing domain.

He further adds that there was a pressing need for more initiatives like Asha to meet the massive shortage of affordable homes in the country which stood at an estimated two crore units as per the official government figures.
 
ArthVeda hopes to conclude all transactions related to receiving commitments for its STAR II fund by the year end, while the actual deployment is expected to commence from September.

Investments from Asha are slated to begin from December this year.