Expect to hit final close of FLF III fund by mid-year: Avendus FLF's Ritesh Chandra

Ritesh Chandra, Managing Partner - Avendus Future Leaders Fund, Avendus Capital

Amid intensifying competition between private equity funds, family offices and public market investors for securing pre-IPO investment opportunities in promising companies being listed, Avendus Capital has recently raised Rs 850 crore for the first close of its third Future Leaders Fund (FLF III).

Avendus’ FLF is a late stage private equity fund that invests in companies that are 2-3 years away from a liquidity event - an IPO or a stake sale. In an interaction with Moneycontrol, Ritesh Chandra, Managing Partner of Avendus Future Leaders Fund, discusses the appeal of FLF III for domestic family offices and institutional investors. The fund focuses on technology, consumption, healthcare, financial services, and manufacturing. The fund plans to raise at least Rs 1,500 crore for its final close with a green shoe option to raise another Rs 1,500 crore.

Edited excerpts:

What makes FLF III attractive to domestic family offices and institutional investors at a time when such investors have more direct access to pre-IPO deals?

FLF is a late-stage private markets fund that invests in high growth, market leading companies that are typically 2-3 years away from a liquidity event. FLF leverages the institutional platform of Avendus to identify, access differentiated ‘difficult to get’, high quality investments which may ordinarily not be available to family offices or institutional investors. FLF offers investors participation in a curated portfolio of diversified investments (across industry, time and business model) while offering its large investors co-investment opportunities. This structured approach has the potential to consistently deliver attractive risk-adjusted returns with a medium term liquidity across market cycles. There has been a strong interest from HNIs and family offices to participate in direct deals. Investors should evaluate the appropriate mix of direct vs fund allocation based on their access, ability to evaluate deals across industries and ability to exit if an IPO get significantly delayed. While HNI investors and family offices will always have access to certain deals directly, that proportion is small compared to the overall market opportunity.

Can you elaborate on the sectors and types of companies FLF III aims to invest in? Consumption seems to be on a slowdown, while in financial services, consumer lending esp unsecured loans are taking a hit, so will you avoid these sectors in the new fund?

FLF invests in established and emerging category leaders with deep competitive moats and management teams with execution excellence. These are scaled businesses with positive unit economics and well-capitalised balance sheets with institutional investors on the cap table.  FLF III is primarily focused on sectors like technology, consumption, healthcare, financial services and manufacturing..

The current headwinds in consumption and retail financial services are largely cyclical and while the fund is being selective currently on investments in these sectors, on a long term basis we remain bullish on both these sectors. With the recent tax cuts announced in the budget, consumption is likely to get a significant boost and is likely to also lead to an improvement in collections in unsecured loans.

By when do you expect to hit the final close of the fund? How much of the first close has been raised from institutional investors and will you be raising more money from institutions for the final close?

FLF III announced its first close of Rs 850 crore in mid-January 2025. In this close, we had several leading domestic family offices re-up (increase) their investments while also attracting a new pool of investors. We also saw strong participation from leading Indian insurance companies, which committed ~15 percent of the first close raise. We expect to announce the final close by middle of this year and estimate that institutions could potentially comprise ~20 percent of the total corpus.

How do the FLF funds leverage the Avendus platform and its variety of businesses spanning investment banking, wealth and lending?

As the flagship private markets fund of the Avendus Group, the Future Leaders Fund is built on the franchise’s core strengths—an extensive network of relationships and deep domain expertise. Over the past seven years, FLF has strategically leveraged the synergies across Avendus’ Investment Banking and Wealth Management businesses to craft and execute its investment strategy. The FLF platform capitalises on its strong relationships with entrepreneurs and financial sponsors for differentiated deal sourcing, utilises the wealth management platform for fund distribution, and draws upon the investment banking team’s industry expertise to identify opportunities and facilitate successful exits.

With a bigger fund and co-investment commitments, how different will be the ticket size for the new fund and how will that change your strategy compared to the previous funds?

FLF III will build on the proven strategy of its predecessor funds, FLF I and FLF II, while scaling its investment approach. A significant number of our investors have expressed strong interest in participating alongside us in co-investment opportunities. With this fund, we plan to deploy Rs 300 crore-500 crore per deal, nearly double the investment size of our previous funds. Given the growth trajectory of our target businesses, we believe this increased investment size is both viable and well-aligned with market opportunities. Moreover, there is a structural gap in the market, with limited competition for deals of this scale. While we remain committed to our core strategy of constructing a focused portfolio of 12-13 high-quality companies, FLF III will deploy larger capital into these businesses, ensuring meaningful exposure to each investment via both the fund and co-investment capital.

Can you elaborate on the performance of your previous two funds? How much money has been returned, how many complete exits have been made so far?

As a leading large-cap private markets fund, FLF is committed to delivering consistent outcomes, attractive risk-adjusted returns with a strong emphasis on distributions. FLF I, a 2020 vintage fund, has exited six investments, returning 136 percent of investor capital to date. A seventh exit is planned for this quarter, and the remaining three investments will be exited during the year with additional capital expected from the sale of the residual portfolio assets. The fund is currently tracking an IRR (internal rate of return) of ~21 percent. FLF II, launched in 2021-2022, has a younger portfolio that continues to show strong growth. It is currently tracking a MoIC (multiple of invested capital) of around 1.4x in just over two years, with portfolio value increasing by 26 percent in the nine months ending December 2024.