IL&FS Investment Managers Ltd (IIML), the country’s largest home-grown private equity firm by assets under management (AUM), is scripting a new realty fund, according to sources close to the development. The public-listed PE fund manager, which has AUM of $3.2 billion, will launch the IL&FS India Realty Fund (IRF) III with a targeted corpus of $500 million in the current financial year.

The targeted size of the new fund is much smaller than the second fund called IRF II, which raised a humongous $895 million. IRF II was launched in 2007 and had a target corpus of $750 million. But it managed to raise a higher corpus when the market was at its peak. The second fund has managed gross returns of 19.9 per cent per annum across two divestments.

A wealth manager privy to the development said, “The Company has decided to raise a smaller fund as managing a large fund has become tough since its average deal size is of $20-30 million.”

According to sources, the company’s management has shared with its investors that the fund requirement in Indian realty is not as large as its peers in other countries and thus, the PE firm would like to stick to small-sized deals.

An e-mail query sent to the IIML spokesperson did not elicit any response.

IML scrip declined 1 per cent to close at Rs 27.15 on the BSE, in a strong Mumbai market on Monday.

The firm had raised its maiden realty fund IRF I in 2006 with a corpus of $525 million, which was fully invested. From the second fund, it has invested in more than 30 deals, spanning projects across the country. Going forward, it wants to invest in the same deal size bracket (up to $30 million) from its next fund.

As per its website, IIML currently has six real estate funds with $2 billion under management. Besides its own funds, it operates a few joint venture real estate funds including IL&FS Milestone Funds I and II, along with Milestone Capital.