Franklin Templeton Ventures into India’s Private Credit Market with Santosh Kamath at the Helm
In a significant move to expand its investment offerings, Franklin Templeton’s India unit is gearing up to enter the private credit industry, with veteran investment manager Santosh Kamath set to lead this new initiative. This development marks a strategic shift for the firm, particularly in a market where traditional lenders have become increasingly cautious.
The New Private Credit Fund
Franklin Templeton is preparing to launch a private credit fund, which will enable the company to lend to companies in India, a market that has seen banks and shadow lenders retreat from all but the highest-rated credit opportunities. This move aligns with the growing trend of global managers such as Apollo Global Management, Cerberus Capital Management LP, Varde Partners, and The Carlyle Group, who are also increasing their presence in India’s private credit space.
For further details about India’s growing alternative investment market, read Top AIF Funds in 2024: Highest Returns for Investors.
Leadership and Expertise
Santosh Kamath, formerly the Chief Investment Officer at Franklin Templeton Asset Management (India) Pvt., will manage this new private credit strategy. Kamath has a distinguished track record in the Indian debt market, having played a pivotal role in creating the market for lower-rated corporate bonds. His expertise and appetite for high-yield Indian debt have made him one of the country’s most renowned investors. However, his tenure was also marked by challenges, including the forced freeze and wind-up of six of his funds in 2020 due to diminished demand for riskier assets during the COVID-19 pandemic.
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Regulatory Approvals and Next Steps
To facilitate the launch of the private credit fund, Franklin Templeton will soon file with the Securities and Exchange Board of India (SEBI) for a license for a Category II Alternative Investment Fund (AIF). This category is designated for private equity, private credit, and distressed assets funds. The target size of the fund will be determined once the necessary regulatory approvals are secured.
Market Context and Growth Potential
India’s private debt market has witnessed significant growth, with India-focused assets under management for private debt nearly doubling to $15.5 billion as of December 2022 from the previous year, according to data from Preqin. This surge underscores the increasing attractiveness of India’s private credit sector, which, although still a fraction of the global $1.5 trillion private credit market, has recorded the highest investment volume in Asia over the last five years.
| Year | India-Focused Private Debt AUM (USD) | Growth Rate (%) |
|---|---|---|
| December 2021 | $8 billion | – |
| December 2022 | $15.5 billion | 93.75% |
| December 2023 (Est) | $18 billion | 16.13% |
Explore the sector’s growth further in Mutual Funds Pulled Back From These Sectors in December 2024.
Management Changes
In addition to Kamath’s new role, Franklin Templeton has also made other key management changes. Rahul Goswami, formerly with ICICI Prudential Asset Management Co., has been hired to replace Kamath as the Chief Investment Officer and will lead the firm’s fixed income business. These changes reflect the company’s commitment to strengthening its investment management team and navigating the evolving financial landscape in India.
Regulatory Oversight and Past Challenges
It is worth noting that Franklin Templeton has faced regulatory scrutiny in the past. SEBI had imposed fines on the company, including on Santosh Kamath and other debt fund managers, for violations related to the management of several debt schemes that were wound up in 2020. The regulatory body highlighted issues such as similarities in investment strategies across different schemes, high exposures to lower-rated corporate bonds, and inadequate risk management practices. These challenges have likely informed the company’s approach to its new private credit venture, emphasizing the need for robust risk management and compliance.
Conclusion
Franklin Templeton’s entry into India’s private credit market, led by Santosh Kamath, signals a significant expansion of the firm’s investment offerings. As the Indian economy continues to grow, the demand for alternative credit sources is expected to rise, making this a timely and strategic move. With its strong leadership and commitment to regulatory compliance, Franklin Templeton is well-positioned to capitalize on the opportunities in this burgeoning market. This development not only reflects the company’s adaptability but also its dedication to providing innovative investment solutions in a rapidly evolving financial landscape.