India’s Rabo Equity mulls third fund by end 2018

The firm, which expects to make two investments totalling $40m by March, aims for 20% to 25% IRRs. We spoke with chairman Rajesh Srivastava about fund structure and strategy.

India-focused ag vehicles are not plentiful. But Rabo Equity Advisors, a subsidiary of Dutch lender Rabobank, is one of them – and it is starting preparatory work on its third fund, Agri Investor understands.

The firm is currently investing its second fund, a 10-year vehicle closed on $150 million in 2016. It has already made five investments, with five more in progress, according to Rajesh Srivastava, Rabo’s chairman and managing director. He expects the firm to seal two more deals, worth a combined $40 million – taking total capital deployed to $90 million, by March this year.

Rabo is also in the process of exiting assets held by its $120 million debut fund, launched in 2008. The eight-year vehicle, which had a portfolio of nine assets, started divesting when it exited edible oil maker GeePee Agri Private to the UK’s ADM in 2011.

Expanding LP base

Fund I was sponsored by Rabobank, which provided 25 percent of total commitments. The International Finance Corporation, the vehicle’s anchor investor, pledged $20 million; so did Germany’s DEG and the Netherlands’ FMO. Private investors, including fund of funds Capvent and RWB, made up the balance.

Anchored by the UK’s CDC, Fund II is also backed by a significant portion of DFIs, including the FMO and France’s Proparco. Its LP base includes multilaterals from Asia, such as the Asian Development Bank, Srivastava said.

He expects Fund III to be launched by the end of the year. “We’ve started work on the concept,” he told Agri Investor. He noted that the vehicle would be bigger than its predecessor, in part because Indian companies themselves have got bigger.

Srivastava said the fund would seek commitments from the usual suspects but also from private institutions, notably pension funds from Europe and North America. “We were too small the first time around,” but the firm may now be reaching sufficient scale to be on their radar, he suggested.

Private equity returns

Rabo is 51-percent owned by Rabobank and 49-percent by its senior staff, including Srivastava. It seeks significant minority stakes – between 15 percent and 49 percent – in companies spanning the agribusiness value chain.

It follows a growth-equity strategy: while its first fund was aiming for 20 percent IRRs, Srivastava said it could now look to bank on its experience to expect returns of up to 25 percent.

Its mandate allows it to sign equity cheques worth between $3 million and $12 million, though it can seek to deploy “more capital if needed”, and is open to co-investments from fund investors. Its portfolio is resolutely diversified, ranging from rice and farm inputs to post-harvest infrastructure services and nutraceuticals.

“India’s transition from an agrarian economy to the world’s food factory entails significant investments and knowledge support, both of which Rabo is well placed to contribute,” its website says.