Faq - Smartowner Capital Growth Fund I.pdf 6q5p5z

                          SMARTOWNER CAPITAL GROWTH FUND - I 

FAQs                 

A. Definitions, Portfolio & Key      1.

2.

3.

4.

5.

6.

7.

What is the category of the fund’s registration with SEBI?  The Fund is a Category II Alternative Investment Fund, ed with SEBI.     What is the term of the fund?   The Fund is a closed-end fund, and the Term of the Fund is 5 (five) years from  the date of Final Closing. The Term of the Fund may be extended by two  additional one-year periods, or any further periods in accordance with AIF  Regulations.    What types of developers does the fund look for?   The Fund will look for credible developers who have demonstrated superior  execution capability and strong sales and marketing expertise.     What types of instruments does the fund intend to invest in?  The Fund’s focus is on generating superior total returns. A key focus area of the  Fund is to invest in opportunities in or related to the real estate sector. Such  investments may be structured as non-convertible debentures or other  securities. The Fund may also invest in other types of securities of listed and  unlisted companies, including those of associate companies, with prior  approval of investors, in order to achieve the same purpose of generating high  total returns. All investments of the Fund will be in compliance with AIF  Regulations and subject to the discretion of the Investment Manager, who will  make such allocations based on available opportunities.     What is the average investment amount that the fund intends to make per  opportunity or project?   The Fund intends to make investments of an average ticket size of INR 80-250  crore but may make investments of other transaction sizes depending on the  opportunity.     By when can we expect the capital to be deployed?   The drawdown will be called for by the Investment Manager based on available  opportunities, so the capital should be deployed within a few weeks of the last  date for drawdown payment.     Why does a developer raise money from the fund instead of raising it directly  from banks?  Developers raise money from multiple sources and each has its advantages   

8.

9.

10.

11.

and restrictions. Bank lending is highly regulated and subject to conditions such  as restrictions based on the industry to which loans are provided. In the current  context, most developers prefer to raise capital from Alternative Investment  Funds instead of banks due to the advantages of such funds versus the banks.     How much interest income does an investor earn on a quarterly basis? Will  the payouts be on a monthly/quarterly/half-year basis?  The Fund does not have a specific mandate to invest in rental/interest yielding  instruments or projects. The Investment Manager, however, may take a call on  investing in such rental/interest yielding instruments should they seem  attractive from an IRR perspective. There may/may not be any quarterly or  regular interim payouts in the Fund at all as the primary focus of the Fund is  maximum total returns and not quarterly yield. Structured equity or NCD  investments would typically have a duration of around 3-5 years.     What is the indicative drawdown structure for the fund?  Upon execution of the Contribution Agreement, the Unit-holder shall make  Capital Contribution of an amount equal to at least 30% of his Capital  Commitment or such amount which may be determined by the Investment  Manager at its sole discretion. All other drawdowns will be on an as-needed  basis as and when determined by the Investment Manager based on available  investment opportunities.     What is the drawdown period?   The Commitment Period starts from the date of the Initial Closing and  terminates upon the completion of 18 months from the date of the Final  Closing; although the Investment Manager may, at its discretion, extend the  Commitment Period by an additional period of 12 months.     What would be the notice period given to investors to make their  contribution?   The Contributors will have to make the Capital Contributions within 30 days  from the date of the Drawdown Notice.   

12.

If there is any delay by the investor in paying the drawdown, what is the  penalty?   The Investment Manager shall notify the Defaulting Contributor to pay the  outstanding amount along with interest calculated at a rate of up to 18% p.a.  (compounded annually), commencing from the due date of the Drawdown and  ending on the date on which such payment has been received by the Fund. In   

the event the Defaulting Contributor continues to default, the Investment  Manager, at its discretion, may also take additional actions as provided under  the Contribution Agreement.  *For details, please refer to the Contribution Agreement. 

13.

14.

  What is the maximum AUM the fund can raise?   The Fund can raise INR 500 crore, with a greenshoe option, exercisable at the  discretion of the Investment Manager, of INR 500 crore, thereby totalling INR  1000 crores.     What is the target return pre-expenses?  The target return for the Fund pre-expenses at transaction level is 20%-24%*.  *​Returns are dependent on Fund performance, prevalent market factors, liquidity and credit conditions. The targeted  returns are purely indicative and are not promised or guaranteed/assured in any manner. 

15.

16.

17.

18.

19.

  What is the sponsor investment in the fund?   The Sponsor shall make a Capital Commitment of INR 5 crores or 2.5% of the  total commitment, whichever is lesser, as per SEBI regulations.    What is the hurdle rate for the investor?   The Hurdle Rate will be a pre-tax IRR of 10% p.a. computed in INR.    Will the investor get any fixed returns?   The Fund is not a fixed return investment and therefore any return is subject to  investment performance. The targeted returns are purely indicative and are not  promised or assured in any manner.    Who can invest in the fund?   Any person or entity who is eligible to invest in a Category II AIF can invest in  the Fund. Such persons and entities include financial institutions, pension  funds, family offices, banks, insurance companies, high net worth individuals,  non-resident Indians (NRIs) and foreign investors, trusts, partnerships, limited  liability partnerships, body corporates,Hindu Undivided Families, a Government  body (Central or State) or an agency or instrumentality thereof and any other  person permitted by law.    What types of units will be allotted to Investors?  Class A Units (sub-classes A1, A2, A3, A4, and A5) will be allotted to all  investors based on the value of their Capital Commitments.   

 

20.

21.

22.

23.

What are the capital commitments for the various sub-class A units?   - Class A1 Units: Contributors making Capital Commitments equal to or more  than INR 1 Crore to less than INR 5 Crores;  - Class A2 Units: Contributors making Capital Commitments of equal to or  more than INR 5 crore to less than INR 10 crores;   - Class A3 Units: Contributors making Capital Commitments of equal to or  more than INR 10 crores to less than 25 crores;  - Class A4 Units: Contributors making Capital Commitments of equal to or  more than INR 25 crores to less than INR 50 crores; and  - Class A5 Units: Contributors making Capital Commitments of equal to or  more than INR 50 crores.     What is the value of each unit?   The face value of each unit will be INR 100.     Who can be a t holder?   Only the below-mentioned persons can be t holders of a unit:  i. an investor and his/her spouse,   ii. an investor and his/her parent,  iii. an investor and his/her daughter/son      How many people can become t holders?   Not more than two persons may act as t owners of a unit.    

B. Taxes     24.

What is the tax status for the fund?   The Fund has a partial ‘ through’ status and all income paid by the Fund  shall be taxable in the hands of the investor. For domestic investors, the Fund is  liable to deduct tax at the rate of 10% on behalf of the investors on all the  income of the Fund.    In the case of non-resident Contributors, the Fund will deduct tax at the rates in  force (in other words, tax rates applicable to the investors under the Income  Tax Act and/or the relevant Double Tax Avoidance Agreement, as the case may  be, subject to availability of relevant TRC document).    In case Contributors do not have a PAN, the Fund would be required to withhold  taxes as per the following, whichever rate is highest (i) rates specified in the  relevant provisions of Income-tax Act; (ii) rates in force; or (iii) 20% (twenty per   

25.

26.

cent).     Who will be liable for tax in case of t Investments?  For t investments, the Fund will consider the First Holder as the taxpayer on  record.     After the investment, if the status of NRI changes in any year to Resident  Indian then how will taxes be applied?  If the status of NRI or RI investor changes in any particular financial year, then  the investor has to inform the Investment Manager in writing, based on which  the investor’s taxability will be reevaluated.    

C. Fees/Expenses     27.

What fees will the fund charge the investors?   - Management Fee: The payment of the Management Fee shall accrue and  commence from the date of Initial Closing. For the drawdown period  management fees shall be charged upfront on Net Capital Commitment to the  unit-holders; thereafter it shall be payable in advance on a quarterly basis on  Invested Capital.    Units 

Capital Commitment 

Fee (per year) 

Class A1  Class A2  Class A3  Class A4  Class A5 

1 Cr to < 5 Cr  5 Cr to < 10 Cr  10 Cr to < 25 Cr  25 Cr to < 50 Cr  > = 50 Cr 

2.50%  2.25%  2.00%  1.75%  1.50% 

*The rates provided are exclusive of all applicable taxes and levies    

- Operating expenses will be charged at actuals incurred by the Investment  Manager and the same will be attributed to the investor's Net Capital  Contributions.   

28.

- Performance fees post hurdle IRR (carry).     What is the performance fee the fund charges?   Performance fees with will be charged to the unit-holders at the following rates:  Class A1, A2, A3, A4, & A5 – 20% of IRR above the hurdle rate of 10% IRR per  annum, compounded annually.     

29.

Will the fund take any leverage to make investments?   As per the AIF Regulations, a Category II AIF cannot borrow funds directly or  indirectly and shall not engage in any leverage except for meeting temporary  funding requirements for not more than 30 days, on not more than 4 occasions  in a year and for not more than 10% of the investable funds.    

D. Risk Factors Involved     30.

     31.

32.

What kind of risk mitigation measures does the fund intend to take? How  does the fund safeguard investor returns?   The Fund intends to invest in opportunities in the real estate and allied sectors  and is therefore exposed to the risks inherent in those sectors, such as the risk  of project delays, execution risks, vacancy risks, and rental risks. In addition,  since the Fund intends to focus its investments in India, there are country-level  macroeconomic, regulatory and political risks, such as the risk of lower than  expected economic growth, the risk of changes in government policies  including tax policies, and political instability in the country and the region at  large.    The Fund has a rigorous evaluation process and the investment committee  undertakes transactions only when the opportunity meets a detailed list of  financial, legal, counterparty and project-specific evaluation criteria. The Fund  intends to use very conservative benchmarks.    The Investment Manager actively monitors the assets of the Fund and takes  corrective action if required to maximize the likelihood that the investments  perform as expected. 

In case the developer defaults on payments, how is the fund protected?   The Fund invests in multiple projects in multiple asset classes within the real  estate industry, thereby having the benefit of portfolio diversification. In  addition, the Fund invests in a specific project or opportunity only after carefully  vetting the project across multiple factors, including an evaluation of the legal  risk and the availability of significant collateral to the amount funded.  Finally, the Fund puts in place financial, escrow and corporate control  structures to enable the Fund to influence the conduct of its counterparties.    Who is the trustee for the fund?  The trustee for the Fund is Vistra ITCL (India) Limited.   

 

E. Exit Options & Term     33.

34.

35.

Is there any lock-in period for an investor?  There is no lock-in period for an investor. However, this is a closed-end fund.     If the investor wishes to make an early exit, what are the options available?  There is no lock-in period for an investor. However, this is a closed-end fund.  So, if the investor wishes to make an early exit, he will have to find another  investor who can replace his position in the Fund and transfer the units to him,  subject to the Investment Manager’s consent and the new investor agreeing to  the and conditions of the Fund.     How does the fund plan to exit different investments?   The exit strategies for different investments of the Fund include, but are not  limited to:   - Redemption of NCDs and other securities  - Sale of securities in the marketplace  - Refinancing by Developer  - Buyout by the developers   - Sale to third parties like investors, real estate investment trusts, real estate  mutual funds, real estate funds and other alternative investment funds  - Sale of the underlying assets or collateral    

F. Miscellaneous     36.

What are the benefits of investing via SmartOwner Capital Growth Fund 1 as  compared to direct investments in real estate?   - The ability to have experts select the best investment opportunities  - The ability to have experts monitor the investment until exit  - Diversification of portfolio across multiple asset classes, developers,  projects and geographies  - Control structures for investor protection that are hard for individuals to  negotiate  - Opportunity to participate in coworking and other asset classes that are  generally unavailable to most investors  - Ability to obtain superior returns due to the Fund’s negotiating power  - Securing preferred repayment of capital out of a project 

     

37.

Is there any difference between investing in the Initial Closing vis-a-vis any  of the later closings?  Investors who enter the Fund after the first closing will have to pay an  equalization as decided by the Investment Manager to ensure a fair  return to earlier investors.  *For further information kindly refer to the Contribution Agreement. 

  38.

What kind of reports are provided to the investor?   The Fund provides detailed periodic reports as per SEBI guidelines for  alternative investment funds. In addition, investors will be able to to  SmartOwner’s client control and access additional documents and  information relevant to their transaction, such as payment receipts, distribution  statements, periodic project updates with photographs, valuation reports  prepared by independent third parties, information relating to the Fund’s  performance, income, financials and assets, and other information and reports  of interest to investors.    

39.

How often do investors receive a valuation of their investment?   The valuation of the Portfolio Investments will be made by an independent  valuer on a half-yearly basis or other such period under the AIF Regulations,  and the same shall be provided to the Contributors.   

G. FAQs for NRI Investors    40.

41.

42.

Can NRIs and PIOs invest in SmartOwner Capital Growth Fund 1?  Yes.    From which can NRI/PIOs invest?  Investments for the units of AIF acquired by a person resident outside India  shall be made by an inward remittance through the normal banking channel  including by debit to any NRE / NRO .    If at the time of investment the NRI had invested through his NRE/NRO  and thereafter his status as non-resident changes, then how would  the drawdowns take place? Would it need to necessarily continue from the  where the initial investments were made?  In such cases the investor needs to inform the Fund about the change and  provide necessary ing documents so that the information can be  updated. Thereafter, the Fund will accept drawdowns from the bank    

43.

44.

that investor maintains at the time.    Which address should be included in the application form?  Communication address can be any address preferred by the investor, Indian or  foreign; the permanent address of an NRI should be an overseas address.    To which will payouts – remittance of distribution and capital from  the fund be made for NRI contributors?  The payouts from the Fund are made to the same from which the  contribution of the NRI investor was received. 

                                              Disclaimer –The information contained in the above document is not a complete presentation of every  material fact regarding or relating to the Fund and is neither an offer of units nor an invitation to invest.  The information provided herein is for general reference on a best effort basis and does not constitute  any legal, tax or investment advice. These FAQs provide general guidance to the investor and do not  constitute any tax advice. Investors should consult their own tax, financial and legal advisors prior to  investing and at the time of tax reporting. This communication is meant for use by the recipient and not  for circulation/reproduction without prior approval.