New funds ride on change in sentiment

Vishakha Mulye and her team at private equity (PE) firm ICICI Venture has met about 400 international investors in the past five years. She finds the investors far more receptive now than they were two years ago. ''Two years ago, people didn't even want to talk about India. Now people are not only willing to listen but are also willing to commit capital. There's a big change in the mood and approach of international investors," says the managing director & CEO of ICICI Venture.

As the sentiment turns positive for fund-raising in PE, several fund managers are rushing in to raise money. IDFC Alternatives plans to raise $600 million from two funds - $400 million from its fourth PE fund and $200-250 million from a real estate fund, which will invest in mid-market housing projects in six cities. "Both funds will be launched simultaneously," M K Sinha, managing partner and CEO told Business Standard in May.

ICICI Venture, which is raising a $300-million infrastructure fund, is also planning to raise $500 million for a power platform. Aditya Birla Private Equity is planning to raise a $500-million fund from domestic and global investors. Multiples Alternate Asset Management has raised $400 million from international investors for its second fund and has also upped the target size of the new fund by a fifth to $600 million.

There are others looking to raise new funds: CX Partners is looking to raise $400 million; India Value Fund Advisors has raised $500 million and aims to make a final close at $700 million in two months; there are several private equity real estate funds which are trying to ride the good times.

HDFC Property Fund, backed by housing finance major HDFC, is looking to raise a $500 million offshore real estate fund in the next two-to-three months. Piramal Fund Management is in early talks with sovereign and pension funds to raise a $300-350 million offshore fund. Another Mumbai-based fund manager, ASK Group, is in the market to raise a Rs 1,500-crore domestic fund as well as a $200-million offshore fund.

"The environment for PE and venture capital fund-raising for India has improved considerably since the last year," says Darius Pundole, partner, New Silk Route Advisors. This once again emphasises that achieving reasonable exits remains the most important issue facing PE fund managers.

Sanjeev Krishan, transaction services and private equity leader, PwC says LPs are looking at India far more favourably than in the recent past and this is a huge positive for Indian fund managers. What has changed sentiment are also the changes in Union Budget 2015, which has tried to address most of the issues the industry has been asking for - pass through status for category 1 & 2 Alternative Investment Funds, and pass through status on rental income for real estate investment trusts (REITs).

"A REIT kind of structure helps you raise money from the high net worth individuals who are looking to put money into high-return, high-risk kind of assets. The clarification on REITs will help bring in a new asset class," says a PE fund manager.

Unlike foreign institutional investor (FII) money, what comes through alternate assets is long-term money and truly risk capital because almost 90 per cent of that goes into unlisted companies, small and medium enterprises.

"We always used to think what are the policies needed to attract that (FII) money. Somehow, this particular part was not given due importance. In the past one-and-a-half years, most of the issues that we as an industry have been asking for has been sufficiently addressed by this government," says Mulye.

With the government meeting investors directly and sharing its policies and regulatory regime - FIIs as well as long-term investors like pension funds, and fund of funds that are quite large and have the ability to put in large money in alternate assets - there's greater comfort among investors.

"I can go and say anything. But when they get that kind of comfort directly from the government, the confidence level in investing in India goes up. These are longer-term investors and they need to be really convinced that what we are talking about is sustainable for the next four-five years," says a fund manager.