Northern Arc Aims to Raise Rs 1,000 Crore for Alternate Investment Fund Targeting Financial Inclusion

Northern Arc, a non-bank lender, announced on Monday that its subsidiary plans to raise Rs 1,000 crore through an alternate investment fund (AIF). This Category II AIF also has the potential to gather an extra Rs 500 crore via a green shoe option. The funds will be utilised for lending across six sectors to boost financial inclusion and economic growth.

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The sectors targeted by the AIF include small businesses, affordable housing, vehicle finance, agriculture finance, microfinance, and consumer finance. Northern Arc Investment Managers (NAIM), the NBFC's subsidiary, is launching this Finserv Fund. The fund aims to invest in 45-55 entities over a four-year period, delivering an internal rate of return between 14% and 14.50% for investors.

Investment Strategy and Financial Goals

NAIM's chief executive, Bhavdeep Bhatt, highlighted the investment strategy's focus on achieving higher risk-adjusted returns. The approach involves investing in a diversified pool of debt securities from financial institutions to ensure regular cash flows for investors. This strategy supports the growth of these institutions while aiming for substantial returns.

As of June 30, 2024, Northern Arc manages assets worth Rs 14,639 crore through its balance sheet and active AIF funds. NAIM has successfully exited four funds, yielding net returns ranging from 11.72% to 15.77% post-expense pre-tax. These figures underscore the effectiveness of their investment strategies.

Network and Management Capabilities

Ashish Mehrotra, Northern Arc's managing director and chief executive, emphasised the strength of their extensive network. With 328 originator partners, 50 retail lending partners, and over 1,000 investor partners, they are well-equipped to manage the portfolio efficiently. This robust network plays a crucial role in ensuring effective portfolio management.

The AIF's focus on diverse sectors aims to enhance financial inclusion and stimulate economic growth. By targeting specific areas like small businesses and affordable housing, the fund seeks to address critical financial needs while offering attractive returns to investors.

Northern Arc's strategic initiatives reflect its commitment to supporting various sectors through innovative financial solutions. The company's ability to leverage its extensive network further enhances its capacity to achieve these goals effectively.