Singularity Fund of Funds AIF

Fund Snapshot

Investment Strategy

What kind of funds will SFoFII invest in?

• Funds with strong pedigree, vintage and a return track record
• Funds where the investment approach resonates with Singularity in terms of values and risks borne.
• Funds that provide access (which is otherwise not available to Indian investors).

What kind of Secondaries will SFoFII buy?

• The FoFs will purchase secondary interests in mature, high-quality private equity/venture capital funds or companies where:
  • These good-quality assets may be available at discounts of > 25%
  • Investment horizon of 3-5 years
• By investing in a diversified portfolio across sectors and vintage, the fund is designed to yield attractive risk-adjusted returns.
• The fund will prioritize long-term returns over immediate discounting

Investment Strategy

VC/PE Funds

In search of top-tier funds, Singularity pursues:

• Selection basis: thesis, network of the manager, track record, companies invested and synergies
• Modest-sized funds to avoid dilution of returns/suboptimal allocation
• Mitigation of risk through thoughtful portfolio construction, non-overlapping strategies and diversification across industry, stage, and vintage year

Direct Investments

• Investment that will be made to add that extra alpha in returns.
• These would be companies that Singularity has been watching and has been engaged with the founders for a few months.
• These will be low-risk bets, as the company and the business model are established.
• Tracking 250 companies across 15 managers

Funds incubated by Singularity

• House view on a sector may be promising, stemming from characteristics of the sector, change in environment, global trends, capital flows, etc. In such scenarios, we will anchor/incubate a fund with a specialist team, e.g., Atomic Capital
• Singularity has backed a consumer specialist fund manager who has delivered a gross XIRR of 240% & a gross DPI of 3.8x

Secondary Investments

• House view on a sector may be promising, with secondary investments offering an attractive risk-return payoff. Accelerate the pace of cash flows to investors and the overall XIR
• Advantages:
  • Portfolio visibility
  • Reasonable visibility on returns
  • Availability of discount to 25% on prevailing NAV

Portfolio Construct

Primary - ~40-50%

Strategy

• Top-tier VC/PE fund managers with breakout performance
• Vertical/Sector funds
• Follow-on funds/continuum funds carrying more visibility of return and lesser risk
• Incubated funds
• Stage - Across Stages
• Holding period - 7-10 Years
• Cheque Size - INR 10-60 Cr

Co-Investment & secondaries - Upto 60%

• Secondaries of existing funds, to speed up exits and XIRR
• Invest directly into companies, typically series B onwards
• Co-invest in winners of underlying portfolio
• Pre-IPO shares
• Stage - Across Stages
• Holding period - 3-5 Years
• Cheque Size - 20-70 Cr

Sectors

• Consumer
• Software/Enterprise Tech
• Financial Services
• Manufacturing

• Energy Transition
• Defence

Secondaries

Private equity secondaries are pre-existing investor commitments or interests that are resold, either directly between investors or through a secondaries fund.

Why Secondaries?

• Discounted access to fund units and companies
• Mitigation of blind pool risk, enhanced transparency
• Shortened J-curve
• Faster return of capital

Singularity’s right to win in Secondaries

• Deep ecosystem connects to top GPs, institutional LPs and family offices
• Innovative structuring of secondary transactions
• Ability to warehouse deals
• Team brings in a deep understanding of sectors and industry

Interesting Opportunities

• Secondaries of fund units held by LPs
• Secondaries of individual assets held by a fund
  • Seasoned portfolio with performing assets
  • Underlying companies are some distance away from a liquidity event - listing, sale and there is a high conviction on these outcomes
  • Secondary units available at 30%+ discount; innovative ways to structure a transaction to benefit both parties—buyer and seller
  • Pressure on the fund manager by LP groups to show DPI
  • Indian Regulator is disallowing fund extensions, as a result of which, many GPs have an interest in facilitating secondary of LP units

Key Learnings

• Underwriting the quality of the fund manager is of utmost importance. The commercial impact of fees can result in ~ 5% drag on the IRR
• Co-investments/Secondary investments act as a catalyst to returns, and the risk borne is lesser
• The underlying funds are selected on the basis their thesis, network of the manager, track record, companies invested and vintage of the fund
• Early distribution ensures that part of capital drawdown is paid from there, hence optimizing the capital employed
• While Fund tenors are long (8-10 years), the actual cash-out term is low (4-6 years)
• Drawdowns are over 3-5 years
• Exits start from 4th year onwards
• Peak cash outflow is ~65% of commitment

SFoF I: Performance

Singularity Fund of Funds II

• SFoF II is a CAT II AIF is a secondary led FoF, that will invest into other PE/VC funds, direct companies and PE/VC companies
• ~40%-60% investments into secondaries and co-investment
• ~40%-50% into primary funds

Multi-Strategy—Diversified access to:

• Secondary market
• Primary market
• Co-investment rights

Value Orientation

• Focused on Manager Quality
• Focused on acquiring assets at a discount to intrinsic value, reducing or eliminating the J- Curve

Simplified Access

• Access to managers who are difficult to reach
• Sharp tenured, early exits
• No double charge for the investors; Investment Manger (IM) shall be managing their capital effectively for free

Why Singularity Fund of Funds II?

Thesis

• Investing in funds with strong pedigree, vintage and a return track record.
• Purchase secondary interest in mature, high-quality PE/VC funds or companies
• Invest across sectors- consumer, Financial Services, Healthcare, Industrials, Energy transition & Enterprise Tech, amongst others

Network

• Deep connections to Top GPs, institutional LPs and family offices
• Capital Market expertise and access to large corporate network
• Strong corporate and VC/PE connect help in effective harvesting/future capitalisation

Performance

• SFoF I is tracking a pre-carry IRR of 20.3% and TVPI of 1.7x.

No double dip on fees

• Cost efficient – no double charging on management fees and carry

Access to top tier managers

• Managers that are difficult to access
• Rigorous due diligence
• Underwriting quality of Fund managers is of utmost importance, as the commercial impact of 2/20 results in 5% on the IRR

Sharper tenured

• The weighted average tenure of the portfolio will be much less than the fund tenure of 10 years, as there shall be regular inflows from exits made by daughter funds

Companies

• Servify, Qucev, Lohum, Bombay Shirt Company

Invest With Intention, Grow With Confidence

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