Impact investor Lok Capital has returned the principal amount of $65 million that it raised from investors for its second fund, Lok Capital II, a senior executive of the firm said.
“Our second fund has already returned the principal capital raised from investors, which is around $65 million. We have about three more years to go and we are comfortably positioned to beat our expected IRRs (internal rates of return),” said Vishal Mehta, co-founder and partner at Lok Capital.
Lok Capital II will have a better performance than the first fund, which delivered an IRR (Internal rate of return) of 10% in dollar terms, Mehta added.
Lok Capital’s first impact fund had raised $22 million from investors in 2006, while the second fund was raised in 2012.
In the past 12 months the impact investor has exited four of its portfolio companies, which include small finance banks Ujjivan Financial Services Ltd and Equitas Holdings Ltd, micro, small and medium enterprise (MSME)-focused lender Vistaar Finance and financial-inclusion-focused financial services group IFMR Holdings.
From its second fund, Lok Capital continues to hold significant positions in companies such as small finance banks Suryoday Small Finance Bank Ltd and Utkarsh Micro Finance Ltd and MSME lender Veritas Finance Pvt. Ltd.
Another exit that is on the horizon for Lok is MAS Financial Services Ltd, which has filed for an initial public offering (IPO). According to the draft red herring prospectus filed by MAS Financial, Lok Capital is seeking to sell shares worth around Rs38 crore in the IPO. Lok invested in MAS Financial in 2014.
Lok Capital is also busy on the fundraising side, where it is seeking capital for its third and largest fund to date.
“We are firmly on the track to be able to close at around $100 million around the October/November time frame, which was always our target, so we are fairly on track,” said Mehta.
The firm has already tied up commitments worth around $80 million, he added. The impact investor had announced a first close of the third fund at $40.5 million in June last year.
The firm has already made commitments worth $25 million from its latest fund in six companies, said Mehta.
In May, Mint reported that Lok Capital, along with Duane Park, invested $5.6 million in Delhi-based affordable housing finance company Ummeed Housing Finance Pvt. Ltd. Lok Capital had last year led a $3.5 million funding round in the company.
In April, it led a $10.23 million investment round in Chennai-based diabetes care provider Dr Mohan’s Diabetes Specialities Centre. It also invested an undisclosed amount in its portfolio company Utkarsh Micro in a follow-on round.
For its latest fund, Lok Capital has for the first time reached out to the domestic investor base, thus widening its base of limited partners (LP). Investors in private equity and venture capital funds are called limited partners.
“For us it is a more conservative domestic start. Because we have a strong focus on financial services, there are larger financial institutions who are showing interest, which includes insurance companies,” said Mehta. Domestic contribution in the third fund’s corpus will be close to 20-25%, he added.
The investor has also seen a drop in the role that multilateral agencies and development finance institutions (DFIs) have historically played in its funds.
“We started as a fund which was almost 95% subscribed by multilaterals or development financial institutions. In this fund, we will probably end up with 60-65% of the money from DFIs. There is at least 30-35% of more private investors who have now come in,” said Mehta.
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