Neo to raise ₹5,000 crore for new private credit fund as correction shrinks equity pool

The Neo Special Credit Opportunities Fund-II, launched three months ago, has already secured ₹2,000 crore from family offices, ultra-high-net-worth individuals, and institutional investors such as insurance firms, Hemant Daga, co-founder and chief executive of Neo Asset Management, said in an interview.

The opportunity for private credit is getting better because equity as a competing pool will shrink for the next six to nine months, said Daga, citing the ongoing correction.

“Over the last two years, the need for capital in special situations—like bridge financing—has remained consistent. It’s an evergreen opportunity," he said. “But with equity capital becoming less accessible in the current market, our opportunity set has actually expanded."

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In 2024, India saw private credit deals worth $9.2 billion across 163 transactions, a growth of 7% by value, according to an EY report. Competition is increasing amid large fundraises and new alternative investment funds getting registered.

Three-point filter

The Mumbai-based alternative asset manager focuses on capital and machinery-intensive industries such as pharmaceuticals, hotels, paper, and steel.

The fund follows a strict three-point filter when evaluating companies: cash flows, collateral, and counterparty, Hemant Daga, co-founder and chief executive of Neo Asset Management, said in an interview.

“We only consider companies that are EBITDA-positive," Daga said. “If a business is loss-making, how will it repay the loan? The idea is to select borrowers who can begin servicing interest and principal repayments right away."

The fund aims to create a well-diversified portfolio with 25-30 investments, each ranging ₹150-300 crore. Neo Asset Management has five private credit funds in total.

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Daga said assessing the counterparty is crucial. When lending to companies, Neo Asset closely examines their past behaviour and borrowing history, he said. These include checking whether the borrower is a wilful defaulter, besides other checks. It also avoids lending to tech companies, primarily due to a lack of hard assets.

Prior to the Neo Special Credit Opportunities Fund II, the asset management company had closed Neo Special Credit Opportunities Fund-I in June 2024, raising ₹2,575 crore. This fund deployed 100% of its capital across 23 diversified investments and has exited seven of these investments.

The asset manager targets a return of around 23% per annum from the new fund, primarily on the back of coupons for the credit it gives to the companies. The Neo Special Credit Opportunities Fund-II plans to help companies in special situations like last-mile financing, one-time settlements, bridge financing to initial public offerings (IPOs), and others.

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The Neo Group, the parent of Neo Asset Management, is backed by Peak XV Partners, MUFG Bank, and Euclidean Capital. Before setting up an alternative asset management firm, Daga was the chief executive at Edelweiss Asset Management, where he partnered with the Indian government to launch the country's first deb exchange-traded fund.