MC Exclusive: If private credit becomes $70–80 billion industry in 5–7 years we would have done well: Kanchan Jain of Ascertis Credit

Kanchan Jain

Kanchan Jain, Head of Ascertis Credit, which has changed its name from BPEA, has emphasised that a change in name does not mean a change in investment philosophy. In an exclusive interview with Moneycontrol on the sidelines of unveiling the new identity of the company, Jain said Ascertis will continue focusing on performing credit, as it’s an asset class built in India over a decade and is the core of what the fund stands for. She added that as each entity in the performing credit space has carved a niche for itself, there may be some overlaps but not a situation of overcrowding yet."

Was the name change in the works for a while and how important it is for you?

We've been thinking about it for some time, and now seemed like a great time to do it. We've been in this business for 10 years plus. This year is quite an important year from that perspective. We have cumulatively invested a billion dollars plus in our strategies and raised three funds. All our funds have done well. For instance, our second fund was double the size of the first fund and our third fund was even larger. It's coming of age and we are building the business within the performing credit space where we are by far the largest in terms of strategy. We are the early movers in the performing credit and mid-market lending space. We have launched a new fund series which is the short-term income fund. This is in keeping with our overall vision of saying that we are a credit specialist firm. We see ourselves as a solution capital provider and want to provide flexible growth capital to existing businesses for them to grow. We also want to generate very interesting investment returns and investment solutions.
Our first 10 years have all been about spotting an opportunity, and we have done that with discipline and building on it. Now it’s about how do we grow from here. From that perspective, the rebranding is important.

Will rebranding mean relooking at some of the strategies?

We don't see ourselves changing our focus or our strategy. As we look ahead, the key thing is we see a significant opportunity here, not just in India but in the Southeast Asia market also. India has been around for 10 years, and it will grow in a certain way. We will grow the business in Southeast Asia as well and we see significant opportunities. In India, bank credit is a very important part of credit. We don't see private credit replacing that. However, we are seeing opportunities with respect to growth, acquisitions, opportunities with respect to China plus one strategy and so on. This is not just from conglomerates but also from smaller businesses that need bespoke customised solutions. Performing credit solutions across the curve and across end users will translate into multiple products for our investors, and the first step is having a short-term income fund.

What sort of deployment will the short-term income fund have?

Right now, we are raising Rs 750 crore for the short-term income fund. We'll be announcing our final close sometime shortly. There is a requirement for this product from the investor side and from clients. The deployment of short-term fund is already underway. We are working on launching the next part of the fund which should be around a target size of $750 million.

Recently, Aditya Birla has announced its foray into private credit. There are reports suggesting that Blackrock through its joint venture with Jio Financial Services may enter this space. There are many banks operating here. How do you see the fitment for Ascertis versus these players?

The domestic market will grow and there is a very strong case for private credit as an asset class. The big picture is we need capital, not just in the form of equity but also as debt. When we think about debt, there are two different forms of it. One is bank credit, but that's creating credit in the economy. The other form is when you are channeling existing into credit. The two are very different. Private credit can fill in the gap even sitting alongside banks. Today its size is less than 1 percent of banks across all strategies such as performing credit, distress and special situation credit, venture debt and real estate. Globally, its private credit is about 4 percent of bank credit.

The models of each of the funds are different. Foreign players that set up shop in India may be investing billion-dollar funds, and their ticket size is $200 million plus. I see the three of us (Kotak, Edelweiss and Ascertis) as the largest and as players who have the depth in the private credit market. There is an advantage to being in the market, in terms of the ability to source, the ability to have on-the-ground information and the ability to manage that investment. But, even within the three of us, there are differences. Kotak is more focused on special situations, real estate and infrastructure. Performing credit is a new strategy for them. We were the first to start mid-market performing credit, and we've shown that there's an opportunity to build and now we see newer players coming into the space. Edelweiss has historically been a more distressed oriented fund. Everybody has a different execution strategy right towards an opportunity.

How big do you estimate the market in India size up 10 years from now?

If we can get to a $70-80 billion market in five-seven years, we would have done well. It's not going to take over bank credit or replace bank credit. But it would be having another credit source which is different from what we have. It would give comfort to the existing credit, not put pressure only on the banking system.

The Reserve Bank of India took note of private credit last year and came up with certain strictures. What is your thought process on this and do you see some fine tuning on regulations?

From a regulatory perspective, in terms of the AIF industry and specific to private credit, we're in a good place. The AIF industry has come of age in terms of regulations and these regulations have allayed some fears. We are at a stage where we can think about enabling this asset class in a way that it benefits growth. The banking regulator has also done the right things. There is consultation with the industry and they seek data in terms of what's happening in the AIF industry, what kind of investments are being done and so on. That kind of dialogue and exchange is great to build the industry further.

What sort of returns would you be targeting with the short-term fund?

Our return profile of our flagship funds has always been in the high teens. The return profile on the income fund is different because there's a shorter term, around the mid-teens of 14 percent.

You are a performing credit fund specialist. But at some point would you explore a different category?

In the immediate future, we expect to focus on performing credit. We think about risk-adjusted returns. Venture debt is a completely separate asset class and so is real estate or special situation funds. We are a credit specialist firm, and we expect to build our business doing credit. We'll see how the opportunities emerge over the next few years and build it accordingly.