‘Opportunity fund’ managers favor urban areas, commercial real estate

The Architectural Team and Stephen Chung

Commercial real estate in large urban areas will be the big winner from the tax scheme aimed at boosting investment in needy areas, according to an analysis released in November.

But who most benefits from commercial real estate deals remains up for debate.

Fund managers raising capital through the Opportunity Zone incentive programs are most focused on commercial real estate and multifamily housing, primarily in the Northeastern U.S., the National Council of State Housing Agencies said.

NCSHA reviewed public information on 34 such “Opportunity Funds,” and found that commercial real estate is the investment focus of 24 of them. Multi-family residential development is the focus of 23.

Ten of the funds focus on the Northeast, and five specifically target New York. Only two funds refer to investment in rural areas.

As previously reported, Opportunity Zones are pitched as a win-win, but some housing observers worry that they may funnel investment dollars to areas that are already in the process of gentrifying, accelerating that process and leaving behind areas that need the most help.

Many sources told MarketWatch that investors will see real estate as a more easily understandable means of putting their money to work than other programs such as education or labor.


Aavishkaar plans to raise $300 million for South Asia fund

Vineet Rai, chief executive of Aavishkaar Venture Management Services, sees Indonesia as the next hub of impact investing.

India’s biggest homegrown impact investor by size of investments, Aavishkaar Group, plans to raise $300 million for its South Asia-focused fund early next year to invest across financial services, agriculture, energy and health, said a senior executive.

The fund will be used for investments in Vietnam, Indonesia, Myanmar and Laos among others. “We are avoiding India and China, and looking more at smaller markets which have unutilized potential,” said Vineet Rai, managing partner and chief executive of Aavishkaar Venture Management Services. Aavishkaar is part of the Aavishkaar-Intellecap conglomerate, which also owns companies such as IntelleGrow, a non-banking financial company (NBFC) which lends to small and medium enterprises; Tribe, a fintech platform connecting lenders to small entrepreneurs; and Arohan, an east-India focused microfinance lender.

“I see Indonesia as the next hub of impact investing. Like India, it has a high density of population and business models are very scalable. It also has a cultural connect and similarities with an evolving private equity/venture capital system,” he added.

Rai plans to raise the funds from sovereign investors in Singapore, Japan, Australia and the UK, in addition to Asian development finance institutions. The fund is a follow up to its $75 million Frontier Fund focused on South and South-East Asia. It will be Aavishkaar’s eighth fund, which it is aiming for a first close by end 2019.

Aavishkaar is currently raising capital for two of its funds- the $200 million Aavishkaar Bharat fund, an India-specific fund, and a $150 million Africa fund, its first foray into the African market.

The Aavishkaar Bharat Fund is the largest India-focused impact fund being raised by a domestic fund manager. Rai expects the Africa fund to hit a first close of $60-80 million by April next year. He expects the Bharat fund to hit its final close around the same time. It achieved a first close of $95 million in November last year.

The Bharat Fund is backed by institutional investors such as the UK’s development finance institution CDC, Small Industries Development Bank of India (Sidbi), National Bank for Agriculture and Rural Development (Nabard) and family offices such as Sunil Munjal of Hero Enterprise, said Rai.

Mint reported in January 2017 that the Africa fund will focus on east and west Africa with specific focus on Kenya, Tanzania, Rwanda, Ethiopia, Nigeria and Ghana. “Our core strategy is to go deeper in the companies we invest in. We do seed stage rounds and then follow it up with further investments. Our investing philosophy also goes far beyond funding, because we incubate, provide guidance to entrepreneurs and look to scale the business,” said Rai.

Aavishkaar follows a consistent investment strategy in all the markets it invests in, where about 35% of the fund will be invested in financial services, 30% in agriculture and 30% in energy and health.