Transcript

Akshara Menon: Hello everyone, this is Akshara Menon from Famous Bazaar, welcoming you to the fund manager interview series. Today, our discussion will be more interesting in the private market space, more predominantly in the private credit. Indian private credit has emerged as the fastest-growing asset class within alternative investments to give more predictable risk-adjusted returns compared with traditional investments. Pivot Asset Management plays a key role in building institution-level private credit strategies focused on performing credit and more risk-adjusted returns with a robust risk management framework.

Today, we're going to have Mr. Raghunath T, Senior Portfolio Manager at  Vivriti Asset Management, to talk about private credit markets, how they are constructed, and how investors should view this asset class.

Welcome to the show, sir.

Raghunath T: Thank you. Thank you for having me.

Akshara Menon: Yet, it's always a pleasure to have a non-equity person on the, you know, because generally everyone knows about equity.  But last year wasn't that great for equity, though. But still, you know, I've always wanted people who can talk beyond equities and can think beyond, you know, the asset allocation that is there.

So, with regards to that, let me put my first question in terms of investor interest towards private credit. Let me start with a very basic question. From an investor perspective who has just invested normally in equities, for him, last year wasn't that great. So if he wants to shift his allocation to private credit or private investment, private markets, what are the things that he should be mindful of, and what makes it interesting?

Raghunath T: So, I think you started in the right context. Equity has been the face of Indian investing, right? It's been over-represented in the markets. If you take any investor, typically, investors follow a barbell strategy. On one end, they'll have equities, which are extremely high risk but also provide the upside. On the other end, they would invest in FDs, fixed deposits, which are extremely low risk, but it just gives you inflation-beating returns, right?

Earlier, the market did not have too many opportunities. At best, you could have had a debt mutual fund, which could have given you 100 to 200 basis points of pickup compared to the fixed deposits. But today, private credit has become a mainstream option that solves for this, right? So I would place this somewhere between the FDs and the other extreme, which is equities. The returns that private credit provides are equity-like, but the volatility is much lower.

What we call this is predictable and periodic returns. All right. So that's the mantra of what we call performing private credit. So, which means that over a 3 to 5-year horizon, the capital will be locked, but you get periodic returns of, let's say, approaching mid-teens. Right. So that's not something that the equity market has also been able to deliver on a year-on-year basis, right? Of course, you'll have phases where there will be significant outperformance, but private credit today, over the last two or three cycles, has continuously performed this way.

So, I think investors should definitely have an allocation to this. Obviously, this is coming within the AIF structure. So which means that SEBI is also particular that it has to cater to only the slightly sophisticated investors. So a lot of institutional investors and high-net-worth individuals find it prudent to invest in private credit.

Akshara Menon: And when you talk, you know, you spoke about the deals and, you know, like the last few cycles have been very great for private credit. An article that I read from EY stated that Indian private credit saw big deals, and eventually from big institutions, and let me not take the names, but you know, do you think there's a concentration because of one institution has taken a bigger deal? It has shown approximately 53% year-on-year growth in the last year. So do you think that because of institutions coming in, investor participation has been reduced, or is it concentrated, and how does that play out?

Raghunath T: No, I think, see, the market overall, there is no debating that we have been in the thick of action. We have seen the number of deals that come to our desk, for example, right? We see more than 200 deals coming to our desk every year for us to evaluate. We set out to do at least 15 to 20 deals, right? So that's the volume of deals that are coming in.

You are right in saying that there are one or two large deals that have been in the news. I think everybody is aware of which large corporate groups have borrowed private credit. So those are genuine large deals that have found a place in the funds. We have not chosen to invest there, but the market has invested, right? The large deals are also there. But what some of these reports miss is the wide number of mid-market deals. A lot of them don't get covered as well, right? If I take our portfolio, I don't know whether a lot of this is already accounted for in the market data, right? A lot of mid-market deals are there, not visible, but adds up to the numbers significantly.

The right metric, I would say, is how much amount of capital has been raised and deployed by private funds. That's gone up, I would say, 10x compared to four or five years back, and that has been deployed somewhere, right? There have been deals that have been continuously increasing, and what I observe is that we also have other metrics to track how many NCDs or bonds are issued by the lower-rated issuers, right? So that number, if we take that, is constantly increasing, and this is put out by, say, every quarter or so. That number is also constantly increasing.

So, bottom line is, the number of deals is increasing, and so there's more capital coming into private credit, and it's a virtuous cycle, right? So there's more capital coming, so there's more flexible capital available. More and more strong companies, middle-market companies, are choosing to borrow from private credit rather than the traditional sources of NBFCs and banks. So there are headline-grabbing deals, but I would say there's a broad-based growth in the market, enough deals for everybody.

Akshara Menon: When you say that there are several deals in the market, how do you pick and choose? What is the criterion? Because equity, everyone knows what it is. For private credit, what are the, you know, apart from credit ratings of a company, what else do you look at in a company?

Raghunath T: No, and that's the trick of the game. Because, the key difference between debt and equity, of course, everyone knows that equity has unlimited upside, right? So even if, let's say, out of 10 stocks, six or seven underperform, the two or three winners can carry your entire portfolio and give you outsized returns, right? But as debt fund managers, we can't afford to make a single mistake because our upside is capped, right? So, this means that the first and foremost thing is downside protection. We cannot afford to make any mistakes in the portfolio, number one.

So, number two, there can be various degrees of correlation, right? So in a portfolio, for example, we have, like we used to say, we cannot invest in more than X percentage in a particular sector, right? So that there's no correlation, etc. We avoid certain segments that are going through some kind of economic stress. Ultimately, the credit selection is the main point.

So, there is also a school of thought that the management of the credit post-investment, you can exit, right? That means that you can get in without an adequate amount of due diligence. But we firmly believe that the best time to exit is right before having done the deal. So, to that extent, we spend a lot of time. I think every deal goes through two to three months of rigorous due diligence, and most of this is in-house, right? So there is also outsourced due diligence that is there in the market, but a lot of due diligence we do in-house. We do it ourselves. There's no substitute for that.

After rigorous due diligence, only a few companies pass our credit filters, right? Like I said in the beginning, like 200 deals, we have to pick only one out of 10, right? And so, that gives us the flexibility. So, which means our constant focus is to widen the top of the funnel, right? So that we don't end up with only 10 deals and having to wait, because there you will face issues because of selection, right? So the constant endeavor as a team is to widen the top of the funnel and then be extremely focused. No amount of deployment pressures or anything else will sway us from choosing a bad deal. A bad deal is a bad deal in any circumstance, so we have to stick to it.

Akshara Menon: So, you know, as you said, that exiting before entering the deal is the best exit, but in terms of investor liquidity, it always matters. He has entered the fund, you know, but at one point of time, if he wants to exit it, liquidity is always an issue in this private market. So if you want to address that particular point, how would you do that?

Raghunath T: No, that's precisely why this vehicle has become very popular, right? There is no mismatch in expectations. So earlier, this private credit was being done through the debt mutual fund. Every mutual fund used to have a credit fund. It was being done through them. But there, investors had a mismatch. When they wanted to exit, the investment portfolios were not built to exit in one day, right?

Here, we go in, and when you meet investors, the first thing is to say that your capital will be locked between 3 and 5 years. So there is no substitute for that, right? So it's a closed-end fund. So everybody's clear from day one. So we build our portfolios also accordingly. Between the last 1 to 2 years, there is a defined exit window where we exit all our positions, they mature, and we return the capital to investors.

So while I will not say that there is any liquidity possible in the fund, it's just that the expectations are set accordingly. This is a closed-end vehicle, and this is the right vehicle for credit, right? Which means that if you go and press for liquidity and sell an instrument at the wrong time, a good deal also becomes a bad exit, right? Because it's not a liquid market.

Today, unlike in the West, for example, where private credit is also actively traded, in India, this market is just beginning, right? It will get there in 10-15 years. But today, we cannot exit a position. There are no ready buyers out there, right? A public bond, you can, but a private credit transaction, where we have underwritten it bespoke, right, at the same terms, somebody has to be ready to buy. So it cannot be done in a day.

So that's why the vehicle is closed-ended, and it'll stay that way. But the investors are taking an informed decision on day one, right? And nobody is investing their entire corpus. Everybody allocates the right amount of capital, which is not their liquid part of the portfolio, which can stay invested and earn the extra returns.

Akshara Menon: So when you say that the investor takes the informed decision of knowing that it's illiquid. Correct. So similarly, he knows what kind of returns he can expect from this, unlike equity. But, you know, in past years, like five or four years before, the expected IRR was like 16-17%, 15 to 17% range. But today, the scenario is somewhere around 13 to 15%. So we have, you know, IRR has been reduced. So, do you feel that it's quite concentrated, or do you feel that the alpha part is being narrowed in private markets?

Raghunath T: Okay. So I'll answer this in two ways. One is what is happening in the market and what, for example, we as a house are doing, right? There is definitely some yield compression on two counts. One is that the market interest rates have come down, right? RBI has cut rates by more than 150 basis points. So yields are bound to come down, right? So that's number one. Number two, there is competition. So there are more and more funds that have come up. So, which means there has been some yield compression.

But does that mean that every deal in the markets is seeing that competition? No, right? So there are pockets. For example, every large private credit player who's, let's say, in the second or third vintage of funds has established their own niches, right? So we have sectors where we are the first port of call, right, for issuers trying to raise money. So there we go, structure a transaction, and do it right without even the next competing term sheet coming in. So, to that extent, there are certain pockets where yield is still there.

So now, why are the yields compressing? I don't know whether you have seen a cross-section of fact sheets to substantiate this overall yield coming down, but if it is, I think the key reason is also that, as a house, what we have done is basically also move towards slightly larger companies, right? So as the private credit space has grown, many more slightly larger, I would say, larger mid-market companies have become open to the idea of borrowing from private credit. The macro environment is slightly volatile. So today, with all the tariff shocks going on, etc., we prefer to invest in slightly larger balance sheets, right? So at the expense of maybe 100 basis points of extra yield, we prefer safety, right? So that's why maybe instead of 16-17%, we are closer to 14-15%. This is a house, that's where we are.

Will the yields get compressed below this? I don't think so because there are enough pockets within the market that will give us yield by taking the right amount of calculated risk.

Akshara Menon: But saying that, you know, sectors always play a role. You can't have too many deals in one sector. Exactly. It happens in everything, but in terms of private credit. What kind of sector is doing well? Or, probably, I can put it this way: what sectors are Vivriti looking into in the private credit space? 

Raghunath T: We are again a sector-agnostic fund. So we play across the spectrum. We don't want to be bound to any sector. As long as it's diversified and we are playing in the right segments of the economy, we are happy. Having said that, as I said, there are always some ready sectors. So, for example, infrastructure and real estate require ready capital. There is enough and more capital needed at any point of the cycle. So that's there. We have been very big on infrastructure, not as much on real estate. Real estate, maybe we can do industrial, commercial real estate, but not as much on the residential real estate side.

On the other side, what we have observed recently is that now a lot of mid-market corporates, manufacturing companies, which are embarking on their next phase of growth, there are many PLI schemes in many sectors that the government has come up with. Two years back, there was a mad rush of deals in the renewable energy space. Every solar module manufacturer was trying to raise capital from the private credit space. So a lot of these transactions in these segments are very, very live and active.

Beyond that, again, as a house, we don't want to be straitjacketed to say that we would do only these sectors. We follow the deal flow, right? Beyond this, we also keep adding to our expertise. For example, financial services, renewable energy, and infrastructure are areas where we would claim to say that we have done enough and more number of deals. And today, the focus is more on that "factory" right, so that's the theme of the market, and that's where we are also very active today.

Akshara Menon: Okay. You know, generally when you say that you want to lend, it is always compared to a bank. Investors in this private credit space wonder why, rather than going to a bank for a loan. But what I see from an investor perspective is that banks give information that is more available. I would say the information is more likely to be available to everyone. It's more public, I would say. But in private markets, it's only to the investor community. So, do you feel that there's a gap, and if private credit comes and gives the information to the public, will the source of capital increase for private credit?

Raghunath T: No, actually, I'll contradict that because, there are two ways to see this, right? One is the data on investments. Let's say you are a depositor in a bank, right? You are effectively giving money to the bank. What does the bank give you in return? They give you a rate, but they don't give you the entire set of investments or loans they make, right? Whereas every investor who has invested even a small amount in our funds gets the entire list of all investments we have made, the investment thesis, right? And quarterly reports on how each company is performing, right? Not a select set of companies, all companies, right? So disclosures on investments and regular updates, I would say, are actually higher here to the guys who have actually invested, right? So that's number one.

But if you apply the public market lens and say that banks do really well on regulatory reporting, which is basically RBI's laid-down guidelines as to how NPAs have to be reported and the ECL provisions and all of that, right? In private markets, globally, that's been the concern, right? To say that people find it difficult to judge how a fund is performing, right? Because it's not as transparent as a bank in terms of the regulatory reporting.

But again, at least in India, what we have seen and also what we practice is full transparency to our investors in terms of the performance of all our portfolio companies. And today, we are in the third set of funds, right? Which means the first two funds we have actually invested in and exited, and given updates to investors accordingly. And even where there's a slight deviation in performance, we actually update, and there's a standard set of procedures in terms of valuation, etc. Because in private markets, the valuations are slightly opaque, right? Which means you can claim that every bond is at par valuation even though there's stress at the back, right? So that's the key thing.

So we have instituted triggers internally to say that on rating downgrades, etc., there has to be a markdown of the bond, which triggers communication to investors to say that there is a markdown, there is some issue going on. But at the back end, we keep trying to recover the 100% of the instrument.

So I would say disclosures on this front are slightly poorer than the banks', but this is a problem of the market. It's called private markets for a reason, right? So, as an investor, when you're looking at every fund, I think investors have to put in due diligence to each fund's past track record of actually disclosing stress events, right? Have managers been very transparent? Have they been sticking to the discipline of what they said they did? Investment strategy versus portfolio construction? All of that can be judged by the actual performance disclosures, right, frequently. I think this is available to investors who are looking to invest. Whether this will be disseminated in the wider market, I'm not sure that it will happen.

Akshara Menon: So, probably we can look forward to that in the next five to seven years. But the answer that you said, I have one more question to ask. All of us are human; we might make mistakes. So, is there any deal—I wouldn't call it a bad deal, but it was a mistake that you wanted to get out of? Was there any deal in the last two funds that you closed?

Raghunath T: There have been no defaults in our funds since inception. Having said that, have 100% of our deals gone in the same way that we envisaged? No, there will always be, like you said, there'll always be things, deviations in performance. And what has really helped us, right, we invested, imagine, in the peak of COVID, right, when there was a lot of uncertainty, and we were able to exit almost all the positions as per standard exit protocols.

There were at least two or three investments where it needed extra efforts from our side to go and meet the managements and, you know, get an exit accordingly, right, or get prepaid, right? Where we don't like how the company's performance is trending, we'll have documentary provisions, right, to say that we can recall our money back or to initiate legal action, etc., even if there's no payment default. So those are provisions that we have. But thankfully, we don't have defaults in our track record, right? So that's the best part. That's how risk management works.

Akshara Menon: And, you know, of course, when you spoke about how the fund is, I think it's one of its kind to have this ESG fund. Having returns and also to follow ESG and to have deals in ESG, how does all three put together work? How is it actually working?

Raghunath T: So that's been a part of our DNA from day one, right? We have always been trying to do meaningful, provide meaningful capital to our investors, I mean, capital opportunities to our investors, and also capital to our investing companies, right? So we have, in fact, two sets of funds, right? One is, of course, the diversified bond funds, etc., where it's purely commercial capital. The investors invest for return; we are investing in entities for commercial reasons.

There's also a lot of ESG-related or thematic funds that we run as a house, right? And that's coming in from our experience as an investor. Today, we run mandates for marquee global investors who have chosen us as the manager for their India ESG strategies, right? So we run thematic funds on financial inclusion, agriculture, climate, etc., which are also in the works. In these segments, one is our experience in underwriting these sectors, right, which is something that is known. Number two, we have a specific, large sustainability or ESG team that actually does a parallel diligence.

In India, it's a very nascent market with respect to this, but today, we are one of the early entrants in this. Our team basically guides all these portfolio companies to come up to scratch on their compliance standards, which makes it easy for them to access this type of capital globally, right? So we are the first port of call. But once their ESG standards are set in motion, there are today a lot of avenues for portfolio companies to borrow globally in terms of green bonds, etc., right? So that's possible. So we become like the enabler for that, right?

And in this space, there are global cycles as to this. Today, for example, the US is not pro-ESG, right? So, the ESG capital flows from many parts of the world are still flowing in, right? And we find it prudent to invest in it, and there's also commercial sense in doing it, right? So today, ESG goes into, let's say, financial inclusion, renewable energy. All of this, these are sectors that are providing commercial returns. We don't have to do anything differently in terms of how we will underwrite for investing in these companies. The same parameters apply to us in investing, also. We're just going deep into particular sectors. So that's how we, as a house, have built credibility. And most of the capital we manage for these strategies is inbound capital, where we are chosen as an investment manager for very large global groups.

Akshara Menon: And also, when you said that India is still in a nascent stage in terms of private markets only, so where do you find the gap? Let's not compare the US or any other developed market, for that matter. Where do you find the gap between India and developed markets, and where India is standing in terms of private credit?

Raghunath T: Means, see any statistic you take, right? So the first thing I would say is look at the size of what is called the high-yield market in the US, right, or what is called the leveraged loan market. It's maybe billions and trillions of dollars, where it's only investment-grade and below companies that are issuing that many bonds. In India, you'll be hard-pressed to find even A-rated companies, right, which are generally safe, issuing bonds, right? So all the action is in the AAA category. Everything below that is mostly in the loan market. What we call the loan market is just banks and NBFCs, right?

The private credit market is just trying to change this by bringing more and more issuers into this space with this amount of capital. I think there are some statistics as to how much private credit—you mentioned, I think, 8 billion, 9 billion in terms of numbers. Compared to the banking market today, if you take the overall loan book of the banks, this will be nothing, right? This will be a very, very small percentage of that, right?

But the structure of the Indian economy is not too different from the US or elsewhere, right? So, with more and more financialization of savings, right, how the Western markets can do this is more financialization of savings, and investors are choosing to invest in credit, private credit, through the private credit route. In India, this is also starting to pick up, right? More action in private credit, you would also see more action on the online bond platforms. Even retail investors are choosing to invest. So that's a welcome change.

So we expect more and more capital to start coming in, and then the issuances will come in. Today, if you go and ask a mid-market corporate whether they want a bond, the answer will always be yes. They are also constantly trying to diversify capital away from banks. But there's not enough supply of capital, right? So that is what people like us are trying to solve. We're trying to bring in more and more supply of capital, which will invest in these lower-rated bonds, right, or what we call structured bonds, which are not the safest of bonds. Double A and above bonds are safe, which are meant for a different type of investor, right? An investor who wants some yield as well cannot be satisfied by investing in that, and that's where we come in.

Akshara Menon: No, now we just spoke about India compared to developed markets, but after five, seven years, let's say after 10 years, what is the one innovation that you expect to have in private credit? Is it like deeper penetration into the current products, or is it like more of regulatory changes coming in and reducing the ticket size or something? It can be anything else, but where do you see private credit coming in?

Raghunath T: No, I would say just the organic growth of what we have started to do, right, that itself is going to see a huge change. So, just if I have to think about investor portfolio allocation, right, today the largest of family offices or insurance companies are investing in us. Their allocation to us will be very, very small, you know, a few percentage points in terms of their overall allocation. Whereas globally, this number is in maybe 15-20%. The alternative allocation has increased to 30-40%. Within that, there is a private equity allocation and a big private credit allocation. So easily, an order of magnitude increase is possible just because of increasing allocation. Not to forget, the largest market movers, the largest insurance companies or the largest pension funds of India, have not begun to invest in this space. So that's number one.

In terms of product innovation, that's also definitely going to be there. The key theme globally in private credit has been what is called asset-backed finance, which is not corporate balance sheet lending, but you take the asset out and then fund for that, right? As a house, we are very, very strong in that, and we have launched the first asset-backed fund in India, right, through the GIFT City. And that's only going to grow, right? So that means that all the retail loans, mortgages, right, any form of receivable financing, everything can be done through the private route. Today, it's done by specialized institutions, right? You'll have supply chain financing companies, you'll have factoring companies, you'll have banks doing this in their own vehicles. But this is going to be a very, very big part, and that will just increase the size of the private credit universe significantly.

Akshara Menon: So, one of your answers, you mentioned that we have closed two funds, and the third one is almost on the closure side.

Raghunath T:  Fundraised closure , we have deployed 50%, and the rest of it will be deployed over the next two years. .

Akshara Menon:  So with that, is there any deal that has been followed through, like you used a deal in the first fund and also used the same deal in the second fund? 

Raghunath T: Is that something that generally happens.  So, because see, if you think about it, a corporate is coming to us to borrow for a specific need, right? There's a specific scenario. Typically, there's a growth opportunity that the management team or promoter doesn't want to miss. They don't want to dilute by raising equity capital; they want to raise debt. It's very topical. It's that point of time, right? If you think about it, let's say the same company is borrowing again at high-teens, mid to high-teens, for 5 years? Maybe that's not the right place for them, right? So, mostly what we have seen is that those companies actually move out into the NBFC and bank markets and raise their next round of debt, or raise equity. In fact, many of our portfolio companies from the first and second funds have now, in the public markets, done an IPO, right? So that's a natural journey.

So, which means each fund will have its own, mostly unique set of deals that are coming in at that point of time, right? There are certain segments where there are, like I said, capital-guzzling sectors, right, where there could be a different project of a large infrastructure company, which could raise financing. That's fine. But other than that, generally, it is going to be unique deals. Each fund will have a unique set of deals.

Akshara Menon: Of course, last calendar year was not good for equities at all, but there was a myth around the market saying that people pulled out money from equity and put it into private markets and more into private credit. Is it just a myth, or was it real? Because nothing was in the papers.

Raghunath T: No, we have seen it. See, different types of investors have different trigger points, right? So the institutional investors we track have been organically increasing allocation to private credit just because of their experience, always, not driven by other considerations. But we have seen the wider market be driven by, first, there was a taxation correction difference between debt mutual funds and private credit, right? That actually drove a lot of allocations to private credit.

And last year, like you rightly said, there are always investors who would perceive, let's say, two to three percentage points higher return in equities, while it's not. Given that possibility is there, right, investors may prefer to take that risk. But when the market corrects, there's always naturally more allocation that comes to us.

But what we have seen positively is that when investors taste private credit, right, it becomes a part of their core allocation in the future. Once the equity market picks up again, it doesn't mean that they will pull out. So there's going to be some allocation to private credit because they know that there is a steady, predictable return that you will expect. They'll tailor their portfolio around private credit. There'll be equity allocation, of course; there'll be private credit allocation also. So all these interim points actually drive more allocation to us, and we, as an industry, try to retain that and bring in the next set of investors.

Akshara Menon: So, maintaining the double-digit IRR is a challenge? Moving on, IRRs in deals?

Raghunath T: No, I don't think so either. It's like I said, there is enough supply of deals that are coming in. Every cycle will have a... so, for example, the gross IRRs what was printed in the sales decks of all our previous funds may not be the same as now, right? Because the market is different today, right? The yield environment is different today. But if we don't deliver double-digit IRRs, I think there's no reason for investors to invest in alternatives, right? So to that extent, there will always be a need for capital for which promoters and management teams are willing to pay a slight premium, right? So our job is to find the right types of opportunities.

Akshara Menon: Okay. I think we have spoken a lot about private credit and private market allocation and such. To investors who are completely new to private markets, what would be the one piece of advice you would say? If he has no idea of putting into private markets, he has no exposure to it, so what would be?

Raghunath T: So, that's what I think. You'll have to go with the right kind of expectations into private credit as a product. As I said, all of this is true. The returns are extremely predictable, right? And you get that significant alpha compared to the other traditional debt products. But what is also true is that there is illiquidity, which I mentioned. For 3 to 4 years, the capital has to be locked and earn the returns for you, for the vehicle to manage. And there is also going to be... so for example, the fact sheets, etc., the investments cannot be similar to the safest investments out there, and there has to be a basis for earning those higher returns.

So, which means that to judge today, I think that the biggest thing I'll say is, now that there are a variety of options, I would always emphasize manager selection as a key thing. So there is enough performance data out there now, you know, that the industry has been there for some time. On choosing managers based on actual delivered performance. What is the investment strategy that is being articulated, and is that what has been observed? And the transparency point that we were talking about in terms of how disclosures have been made. So with the right amount of due diligence on the manager, I think one can confidently invest in private credit.

And you'll also have to find the right strategy, right? So, while we've been talking about private credit as a product, within that, there's, for example, performing credit, there is high yield, there is venture debt, there is asset-backed finance, right? Each of these asset classes, sub-asset classes, I would say, has its own characteristics, right? The investor has to find the right thing that suits their needs, either their risk preferences, the asset preference or how many years the capital needs to be locked in, and then invest. So that's what I would say.

But I think for any investor who has the capital to invest, private credit has to be a necessary allocation. Maybe not the core allocation, that should still be equities, but a significant allocation which will substitute all the core traditional debt products, actually.

Akshara Menon: So, one question: we have a lot of players now in private credit, which was not the case years ago. Today we have a lot of players. So what is it that makes Vivriti apart, or differentiated, from the other players in the market?

Raghunath T: Okay. So, see, that is true even globally, right? So globally, you can say many, many large, billion, hundred-billion-dollar-plus funds are in operation. Each has its own style, its own DNA, right? Similarly, we have, as a house, for example, we have our underwriting principles. We have the set of deals that we prefer. This is generally known in the market, right?

So while there are many funds that have come in, as I said, the funds that have crossed two or three vintages are not that many, right? So basically, I would hardly say there are maybe four or five of the funds that are there in the market which would have crossed those kinds of vintages, right? And each of them has a unique positioning in the market.

So, for example, we are known for, or what we like to be known for, is what we call cash flow underwriting, operating company cash flow underwriting, right, for growth. We don't do too many exotic situations in our performing credit fund, right? So this is what we are known for, right? And we have generally stuck to the discipline of doing this, and we have had what we would call slightly differentiated deal sourcing, right? We don't participate in the widely publicized large deal that you mentioned, right? So those kinds of deals we typically don't participate in because we're not in control, and we like to be in control, right? The term sheets, etc., we like to structure a term sheet, we like to do our due diligence, and we like to be the single guy or maybe one out of a club of two or three funds, mostly, right, who are there with the borrower through the cycle, so that we can also exit, right? If you're one among 100 lenders, you may not be able to. So, which means that we have our unique set of deals that we go after. Our fact sheets have generally been known to be very, very unique in terms of the type of companies that we invest in. And of course, our performance track record is there to be judged, right, on that. Through this differentiated route, we have been able to deliver similar returns or the committed returns to our investors.

Akshara Menon: So, as you answer this, this question is completely out of curiosity. So, for one particular day, as you said, you have 200 deals, 400 deals in the market accepted. So for one particular deal, there are a lot of people coming in, a lot of other asset managers coming in to get that particular deal. So how do you go about taking that deal?

Raghunath T: Not just this, this is the challenge that we face daily. But see, this is the reality of the market, and for the good deals, there'll always be competition, right? So we can either choose to do our unique deals, which is also great, but we also want to participate in all the good deals that are there. So, to that extent, there will always be competition.

So there are different things, right? So one is, of course, what we can offer, optimized through structure, right? So while everybody is offering roughly the same pricing, we structure the transaction quite differently, slightly differently. Are we able to understand the issuer's or promoter's requirement? Exactly. And offer the right solution. Typically, it's like one or two things can swing the deal, right? In terms of not talking about pricing alone here. Structure, maybe collateral, maybe the cash flow schedule that you're offering, or a prepayment structure that you give, etc. That can swing the deal, right? That's number one.

Number two is, what is the confidence that you're conveying? Because, as I said, companies borrow this capital at their critical growth juncture, right? There's something in front of them, which means that it's time-bound. They want to do something—they either acquire a company or set up a plant or do something, right? So they also need confidence that the fund in question will deliver. There is a due diligence process, but it's about the team grasping the right things and then executing. So in fact, many mid-market issuers actually choose us as a team even if the term sheets are the same, right?

That is number one, and number two, we also work in the ecosystem with partners, etc. So we work with many market intermediaries, investment banks, etc., where we have again built this confidence that if we like a deal, we can do all our due diligence and then quickly provide the right solution. Once this confidence is built, more and more people approach us with the intent of closing the deal, right, not with the interest of shopping for deals, right? So to that extent, we try to avoid positions where we are competing, but even if we are competing, we have enough weapons in our arsenal that we can win deals. Of course, we lose certain deals, but when we lose certain deals, we win a lot of deals, so to that extent, that's why our pipeline has always been fairly strong, right? Today, as I mentioned, we are on the verge of maybe, in the next couple of quarters, we'll complete the full deployment of our third set of funds. To that extent, we have always been successful in winning deals over others.

Akshara Menon: And closely, okay. So with that, we have come to the end of the session. So I would like to thank you for educating the investors on the private market and more predominantly on the private credit side, and how the allocation would be, and how they could predict the returns, and also what expectations they can come into the market with. So, most of it we have covered in this.

For the one last closure note, is there anything that you want to convey to investors?

Raghunath T: No, I think it's more of the same. See, as I said, we are at a key junction. We are at this juncture because some of the initial set of investors chose to believe in a new asset class, right? And today, it's become mainstream, right? And that's exactly what I think. Investors have to come out. There is a wide range of products available. There has to be shuffling between products based on, like you said, equities, etc. There's always some shuffling between products that is required. But I think more and more people have to experiment like that, and that's really happening in the Indian market, and we're all thankful for that. Earlier, it used to be only real estate, physical assets, and some amount of equity exposure. Now I think it's become more and more mainstream.

More and more investors are taking advice, right? So there are many wealth advisors, investment banks, etc., who actually evaluate managers like us, right? And they know who the right guys are. So you'll have to take advice because that's financial investing. It's a very, very critical part of any investor's life, even if you are a sophisticated investor, unless you are doing this full-time.

Akshara Menon: Okay. So then, you know, I understood that 20, 25 years before, it was real estate and gold which was mainstream. And then, like, the last 10, 12 years, it was equities that have been mainstream. So now, private markets, private credit have been tending to be the mainstream sort of thing.

Raghunath T: Private credit for the sophisticated institutional investors. For retail investors, I would say there are, of course, a lot of available bonds, where bond investing is the first taste, right? After that, of course, private credit solutions can also be accessed today through a different route, even at a lower ticket size. That's also provided through different avenues to do that. So I would say, even for retail investors, bond investing is an important part of this. Again, invest after a fair bit of education and also have to take the right amount of financial advice.

Akshara Menon: So with that, we have come to the closure. Thank you all for your patience, and I would like to thank you for educating us.

Raghunath T: Thank you so much for having me, and it's always a pleasure to have these conversations and educate more and more investors about private credit.

Akshara Menon: Thank you.