With little or no sign of any improvement in business sentiments amid the global financial crisis, private equity players have had a challenging 2011. Archana Hingorani, CEO & executive director, IL&FS Investment Managers, shares her perspective on the current investment and fund-raising environment with Abhijit Lele. Excerpts:
Global financial crisis has put a lot of strain. What has been the effect on private equity players?
Time lines have gotten extended for existing investee companies to bring their business plans to fruition. This has resulted in hold periods for investments getting commensurately longer. It has also tempered return expectations.
The present economic slowdown has led many firms to face adverse business environment. What role does PE play?
Today, the role of private equity players in relation to their investee companies has transformed to that of a partner. Participation has become more granular in relation to operational matters, funding plans, strategic options, acquisitions, corporate governance.
Going beyond the present gloom, which sectors look promising for investments?
Ancillary services in the port and road sectors, waste, urban infrastructure, logistics, etc, in the infrastructure space are interesting. In addition, companies that cater to the consumption needs also offer opportunities for growth.
The downturn has hit realty. Has it affected returns and delay exits? Have there been request for extensions from developers?
The 2008 global crisis has impacted real estate in India. In addition, the significant number of approvals required for undertaking projects, and lack of bank funding have stretched development time lines. This led to request from developers for additional time to end projects. In 2010 and 2011, many projects funded from 2006 have started. This has resulted in first exits becoming visible.
How is the environment for raising fresh funds?
While investing opportunities are more compelling from a valuation perspective, fund-raising is difficult. With markets slowing and uncertain policy direction, fund raising has been slow. This has been exacerbated by global deleveraging and increased risk aversion of prospective investors.
What is the environment for exits for investments?
Exit environment has been constrained since the global crisis. This reversed in 2010 when markets recovered and exits through stock markets and strategic sales as well as trade sales were achieved. Today, given the volatility in capital markets, exits continue to be challenging. But, investee firms with strong fundamental growth have been able to attract strategic interest.
Given the strain in PE space, will there be consolidation?
Lot of new players are raising funds, as such opportunities for consolidation are not particularly visible. However, one should expect consolidation over the next few years.
Is IL&FS Investment Managers looking to acquire funds of other PEs, the way it picked up realty funds from Saffron?
Saffron was a strategic step meant to access new markets. At the current juncture, we are not looking to acquire any funds.
What is the company’s performance on investing in education space?
Education though an interesting space from an investment perspective, is a complicated. While we are interested, we are currently not evaluating any proposals.