SEAF scratches plans for second Indian agri fund – exclusive

Impact investment firm Small Enterprise Assistance Funds (SEAF) has postponed launching a second India agribusiness fund, as it struggles to find exits for the group’s fully deployed first fund in the sector.

“Our investors have a right to expect us to focus on the fund that we’re managing for them, and I’m not comfortable getting too far ahead when there is still substantial work to do on the first fund,” SEAF chief executive Bert van der Vaart told Agri Investor.

A challenging financing climate, high real interest rates and a two-year drought in India have made it difficult for the fund to reach exits for agri-focused companies, he added.

“[The second agri fund] was predicated on the expectation that we were going to achieve some exits by the end of last year,” he said. “With the challenges in the sector we saw in the second half of 2015, the timing wasn’t quite right to go with a second fund.”

Going ahead with the fund now might push the asset manager off its core strategy for Fund I portfolio companies in its first fund, van der Vaart said.

“To raise a second fund, investors always like to see a couple of exits,” he said. “I think there have been some efforts to push companies to an exit before they were ready, and our view was that we needed to give these companies some added attention to execute our core value-adding strategies.”

High real interest rates are a challenge across various investment sectors in India but price volatility and the reliance on operating loans make agribusinesses particularly vulnerable, van der Vaart said. Relatively low margins in Indian agribusiness also exacerbate the challenges posed by high interest rates, he added.

Fund I was started in 2010, and has committed capital of $41.8 million, according to SEAF’s website. Investors include Life Insurance Corporation of India, Omidyar Network Fund, Sarona Asset Management, Small Industries Development Bank of India, Syndicate Bank, Unigrain and Union Bank of India.

Van der Vaart said SEAF may eventually look to launch a second Indian agribusiness fund once more exits from the first fund are reached and other external challenges are met.

“When this fund realises the potential that we believe it has, both we and our investors should be happy to launch a second fund. Right now, we want our people on the ground to focus on achieving the potential value that our companies have.”

Last week, Agri Investor reported that SEAF India Investment Advisors managing director Hemendra Mathur was leaving the fund to pursue consulting opportunities. He will stay on in an advisory role as the management team transitions.