Flexibility Meets Yield: How Vivriti Asset Management Is Changing the Private Credit Game

1. What defines Vivriti Asset Management's core investment philosophy, and how does it stand apart in India's private credit landscape?

Vivriti Asset Management has been one of the early entrants in the Performing Credit space, identifying a deep structural opportunity in mid-market corporate debt investing (11-16% yield bracket) way back in 2019 by setting up a private credit-focused AMC and deeply investing in people, processes, and building a strong origination engine.

We run diversified, sector-agnostic domestic fund mandates. Till date, we have invested in ~20 sectors, including airports, roads, renewable energy, warehousing, manufacturing companies, and financials, among others.

Our typical investee companies are performing mid-market entities with proven business models, vintage of 7-10+ years, wherein they seek flexible debt from private credit funds like us because either the end-use isn't bankable or traditional lenders banks aren't able to create bespoke solutions which is required in a time-bound manner by the investee company. Stringent credit underwriting, control on deal terms, structuring, security, tighter covenants, uncompromised access to data, systems, and management, regular monitoring of portfolio companies, and pre-emptive decision making are the key pillars of our credit risk management.

2. You've recently introduced India's first semi-liquid fund structure in private credit. What is semi-liquid Fund and what market gap did you identify that led to this innovation?

Semi-liquid funds are an innovative investment vehicle that combine the benefits of both open-ended and close-ended funds while giving access to private markets to investors. These funds are structured as perpetual funds, giving the flexibility to investors to subscribe and redeem at regular pre-defined intervals.

When compared to typical close-ended private credit funds, Semi-Liquid funds score better in terms of –

• Ability to see a 'build portfolio' when investing:

  • Given a perpetual vehicle and being continuously available for subscription investor sees a 'build portfolio' with a track record since inception.

  • Close-ended funds have a limited availability period and a shelf life. They are also known as 'Blind-pool' funds as most of the investors enter with limited portfolio creation.

• Quick access to private markets & no opportunity loss:

  • Semi-liquid funds don't follow a drawdown structure, which ensures full investment for investors in private credit markets.

  • Typical close-ended funds draw down capital over 12-24 month period from initial close, thereby creating opportunity loss for investors till full capital is drawn down.

• Option to receive regular income or allow compounding of income at the instance of the investor, which is not possible in close-ended funds.

• Liquidity option and redemption of invested capital, when required by investor v/s run-down of fund in the last 1.5-2 years in multiple tranches in close-ended funds.

• Operational ease: In Semi-liquid funds, capital commitment takes place in a single tranche, avoiding the need for periodic capital calls, likewise in a traditional fund. This makes operations simpler for investors and their advisors/private bankers.

To summarise, traditional close-ended AIFs demand longer lock-ins and multiple capital calls, which may deter investors from investing in private credit. On the other hand, semi-liquid funds bridge this gap by offering periodic redemptions and faster deployment in a single drawdown, making private credit more accessible and flexible.

3. How have semi-liquid funds been adapted globally, and how practical are they under Indian regulations?

The origin of semi-liquid funds can be traced back to 1992, when the Securities and Exchange Commission (SEC) in the US recommended the creation of a new form of open-ended investment vehicle known as Interval Funds. The momentum in interval fund launches began in 2018 and it is estimated to have cumulative assets under management (AUM) of ~US$1 trillion globally. Notably, credit strategies dominate the semi-liquid funds in the US, with credit being 64% of the overall AUM under interval funds (like Semi-Liquid funds/ perpetual vehicle).

Interval funds/semi-liquid structures have provided investors with controlled liquidity in otherwise illiquid private credit investments. At Vivriti, we have brought this proven model to the Indian private credit landscape by carefully calibrating redemption windows, portfolio construction, and cashflow management.

4. How do you balance the need for liquidity while maintaining portfolio returns in your semi-liquid and open-ended strategies?

The investment strategy of semi-liquid funds is to invest in relatively shorter tenor amortising deals of mid-corporate entities. The liquidity aspect is managed through investing a small portion in liquid instruments, while a large part of liquidity is self-generating through principal amortisation across all the portfolio entities, tied to the frequency and redemption dates of the fund. For investors who have remained invested in the fund for the initial brief period till exit load implications, redemption of invested capital will come without any impact cost, subject to other redemption terms.

5. Who are semi-liquid private credit funds best suited for, and how are they meeting various needs of HNIs, UHNIs, and family offices?

Semi-liquid private credit funds are specially crafted for HNIs/UHNIs. They are attractive to investors who are looking at:

• core debt allocation for an investment horizon of 1+ year OR investors who aren't comfortable locking in the capital for 4-6 years (which typical close-ended funds entail) AND

• a post-tax, post-fees, and expenses return of 7% to 8% p.a from a diversified portfolio across multiple entities, run by a professional asset manager.

It is also suitable for investors who prefer the flexibility of cash flows at their discretion:

• Commit and deploy full capital upfront in a single tranche.

• Receive predictable and stable regular income cashflows OR

• Re-deploy the income and compound the income at similar return profile without any hassle/delay.

• Take out the invested capital along with income in a single tranche, subject to redemption frequency and terms of the fund.

6. Beyond semi-liquid, what other flagship strategies is Vivriti pursuing?

At Vivriti AMC, product innovation is very central to what we do. We continue to innovate – be it our first CRISIL rated AA+(SO) AIF, first amortising debt AIF, first Asset Backed Securitisation fund, or our latest semi-liquid private credit structure. We will continue to offer our private debt solutions and widen our offering in the yield range of 10-18% to meet the varied needs of risk, return, and liquidity ask of HNIs/UHNIs, family offices, institutional investors, corporate treasuries, both domestically and offshore.