As private credit gains prominence among high-net-worth investors and family offices, the demand for investment solutions that combine attractive yields with periodic liquidity is also rising.

Positioned at the intersection of traditional fixed income and private credit, Vivriti's Short Term Debt Fund has sought to address this gap by offering investors access to private credit-like returns without locking up capital for extended periods.

In this edition of ETMarkets AIF Talk, Priyam Kedia, Portfolio Manager & Partner at Vivriti Asset Management, discusses the evolution of India's private credit market, the growing role of domestic capital, how technology and AI are enhancing credit underwriting, and why sectors such as healthcare, manufacturing and infrastructure continue to offer compelling opportunities for investors. Edited Excerpts –

Q) Please take us through the performance of the Semi-liquid fund since launch and what worked?

A) The Vivriti Short Term Debt Fund (VSTDF) had two mandates when it was conceived:

• Private credit-like returns for investors

• Ability to exit periodically – liquidity

We have a tagline, “Get Invested – Stay Invested”. Investors can invest in VSTDF as and when they want, akin to investment in mutual funds, and can stay invested as long as they want.

VSTDF has delivered consistent returns to investors over a period of 20 months since inception. Investments have been granular with 26 outstanding NCDs in the fund to date. With over 200 investors trusting us, our mandate of Returns with Liquidity resonated with investors across family offices, corporate treasuries, and HNIs.

Q) Private credit as an asset class has seen tremendous traction globally. How would you describe the evolution of India’s private credit market over the last five years?

A) India’s private credit market has become mainstream from both demand and supply perspective since 2020.

• Indian family offices, HNIs, and institutional capital (Insurance) have invested in performing credit funds, with domestic money dominating a large part of the total allocation in performing credit funds in recent years. Domestic money has already captured ~50% of the performing credit market, with desi money share expected to go up as pensions and large institutional money open up to this market.

• Performing credit funds have stepped into the shoes of NBFCs, with organic and inorganic growth being funded by performing credit funds. Indian promoters and mid-market companies have mainstreamed performing credit. From acquisition financing, stake consolidation, equity for capex, and last mile funding – growth is being funded by performing credit. Turn-around stories to refinance requirements where the banking system drags in being taken up by performing credit. AUM for performing credit has increased ~4x over the last 5 years

Q) Vivriti Asset Management has invested over Rs 10,000 crore across nearly 110 firms since inception. What has been the biggest learning while lending to mid-sized Indian businesses?

A) Vivriti Asset Management (VAM) has invested in over 110 companies across 4 vintages of funds. Some of our key learnings are:

• Portfolio monitoring: Continuous monitoring of portfolio, including quarterly tracking of financials, compliance certificates, external sources like GST returns, and pension payments, acts as early warning signals. EWS has helped VAM exit at least 4 companies prior to any cracks emerging, with strong monitoring

• AI integration into diligence: Using software to analyse bank account statements to comparing GST returns filed online, VAM has integrated AI into its diligence of underlying companies. Analysts use AI platforms to understand the industry better. Using AI tools to validate financials independently provides VAM an edge to weed out dressed-up balance sheets.

• Expert Advice: VAM proactively uses expert networks to understand industry and related nuances. Paid services are utilised for a deeper understanding of sectoral undercurrents and headwinds.

• Bilateral deals: At VAM, we prioritise private deals with companies and sponsors over participating in

broadly syndicated transactions. With private deals, VAM controls the debt stack and has control on the term sheet as against minority rights typically inherent to BSLs.

Q) Investors often associate private credit with higher yields but also higher risk. How do you balance growth opportunities with capital preservation?

A) Indian private credit is fundamentally different from its US and European counterparts. Given multiple restrictions on the banking system, private credit in India banks strong companies for end-uses which the banking system is regulatorily not allowed or those which the banking system may take time to bank again.

That creates a space for private credit in India to exist without compromising on credit quality. At VAM, our investment philosophy revolves around downside protection. Well collateralised control deals with domestically focused mid-market companies driving the investment team. We avoid venture debt and stress funding in our funds currently.

Q) Your strategies appear sector-agnostic, spanning infrastructure, logistics, SaaS, manufacturing, and financials. Which sectors are currently offering the most compelling risk-reward opportunities?

A) At VAM, we prefer cashflow-generating domestic-focused businesses with asset cover and a vintage of 8 to 10 years. Our thesis greenlights healthcare and pharma, manufacturing, infrastructure (roads and transmission assets, logistics). At VAM, we have been cautious with renewables due to regulatory crutches propping up the industry and consumer discretionary (targeting consumption at the bottom of the pyramid (QSR, branded apparel, etc)).

Q) We are also seeing growing investor appetite for structured credit and securitisation strategies, including through GIFT City structures. How significant could this become for global capital allocation into India?

A) At VAM, we strongly believe in the concept of “Financialisation”. Any asset class that consistently generates yield from granular sources can be securitised. This has already played out in the Western world.

With that in mind, VAM has launched a securitisation fund in GIFT City, which today has a global investor base with commitments of ~USD 220 mn. With domestic institutions in mind, VAM has conceptualised a securitisation fund for domestic investors, which aims to provide high credit quality with superior returns.

With REITs, INVITs opening, we see financialisation in many other sectors, including smart meters, municipal

bonds, etc. which can attract both global and domestic capital.

Q) In an uncertain global macro environment with elevated interest rates, does private credit become more attractive or more challenging?

A) Private credit operates within an IRR band of 12% – 18%. Target companies are rated investment grade or higher with portfolios concentrated around A rated and investment grade companies. Rate transmission is inelastic at the rating band within which private credit operates. Interest rate movement in India have limited to no impact on demand or attractiveness of private credit.

Q) For investors evaluating AIFs today, what metrics or due diligence factors should they prioritise before allocating capital?

A) We would recommend investors to do diligence on two key factors before allocating capital to an asset management company:

• Track record – There has been a plethora of AMCs mushrooming over the last 24 months in India, with skeletal investment teams and under-staffed risk and operational teams. Choose AMCs that have been successful in deployment and return of capital to investors. At VAM, we have launched our 4th vintage of funds, with 1st vintage having returned 100% of capital with indicated returns, and second vintage is about to complete full return by September 2026.

• Portfolio Granularity – Private credit invests in credit papers. In spite of rigorous due diligence and struct guard-rails, risk of default exists, and loss given default is a reality. Concentrated portfolios manifest loss given default. At VAM, we ensure portfolio granularity with average asset allocation of ~5% - 6%.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)