The IL&FS real estate fund has mopped up $895 million (Rs 4,385 crore), promising overseas investors a return as high as 25%. The fund, called IL&FS India Reality Fund 2 (IIRF-2), closed on Monday.

Close to 50% of the investment in the fund has come from US investors. The money has been raised at a point when hedge funds across the globe are struggling to raise funds and investors are pulling out.

Last month, the US banking firm Merrill Lynch had raised $2.65 billion to invest in Asian real estate, especially in countries like India, Japan, China and South Korea.

"The current market situation and capital scarcity provide valuable opportunities. As investors, we continue to look at investments with cautious optimism since we believe in the underlying strength of the Indian real estate market and remain confident of the long-term prospects of this sector," IL&FS Investment Managers(IIML) vice-chairman and managing director Shahzad Dalal told ET.

Even though real estate stocks have taken a severe beating and property prices are softening across India, Mr Dalal is confident about generating the promised return. While the new fund drew investors from the US, Germany, Japan, and the Middle East, contributors to IIRFI, the institution's first fund, have also participated in the new offering.

"It's a significant endorsement of IIML's track record of investing in the Indian real estate sector. We had raised half of the funds from the United States market a few months ago while the balance has been raised from other parts of the globe," he said. "Though our target was $750 million, we have raised $895 million. This is more than the corpus of our first real estate fund, which had raised $525 million in 2006," IIML chief executive Archana Hingorani said.

Courtesy:- ET dtd:- 10th Dec. 2008