October 18, 2024: Mumbai, India – In a strategic move to tap into the burgeoning alternative credit sector, Sundaram Alternates, a subsidiary of Sundaram Asset Management Company and Sundaram Finance, has unveiled the Performing Credit Opportunities Fund (PCOF) – Series I.
This close-ended Category II Alternative Investment Fund (AIF) aims to provide investors with attractive risk-adjusted returns by focusing on high-yielding debentures and mezzanine securities.
The PCOF – Series I is designed to address the funding needs of mid-market companies, specifically targeting sectors such as MSMEs, SMEs, fintech, manufacturing, and services. These businesses, with revenue between ₹250 crore and ₹5,000 crore, are poised for growth, making them ideal candidates for investment.
Investment Strategy and Returns
Investors can expect an internal rate of return (IRR) of 13-16%, translating to a net return of 12-13%. The fund promises quarterly income distributions over a tenure of 4-4.5 years, with a potential two-year extension option. Sundaram Alternates emphasizes a robust risk management framework, employing a variety of security structures including strong cash flows, hard assets, guarantees, and share pledges.
“Our strategy focuses on senior secured credit and diversified, cash-flow-backed investments, primarily prioritizing ‘pure credit risks’,” stated Karthik Athreya, Head of Fund Strategy (Private Credit) at Sundaram Alternates. “The Indian market is at a pivotal juncture for private credit growth, and we believe our disciplined investment approach will yield compelling returns.”
Market Potential and Future Outlook for Sundaram Alternates
The alternative credit market in India is currently valued at around $80 billion, with the private/non-bank credit segment contributing $10-23 billion annually and projected to grow at a CAGR of 10-15%. This presents a significant opportunity for investors seeking diversification and stable returns in an evolving financial landscape.
Athreya expressed optimism about the fund’s reception: “We anticipate strong interest and exciting deployment opportunities for this strategy, which is well-positioned to navigate the current environment.”
