Global investors skip PE route to go solo in India

Miffed with disappointing returns from private equity investments in India, institutional investors in these funds are now opting to go solo. Leading investors in private equity funds, otherwise known as limited partners (LPs), such as Canada Pension Plan Investment Board (CPPIB), the UK government-owned CDC Group and Switzerland-based Partners Group, have hired senior fund managers to invest their money directly in Indian companies.

The move will help the LPs save the fee they pay private equity firms and play an active role in these investments.

Partners Group, which manages funds worth $33 billion worldwide, has roped in Cyrus Driver to strengthen direct investment activities in India.

CPPIB, which handles assets worth $170 billion worldwide, has appointed Vikram Gandhi, a former New York-based Credit Suisse executive, as an advisor to find direct deal opportunities in India. Earlier, CPPIB had made a $100-million commitment to Multiples Asset Advisors, a fund owned by Renuka Ramnath.
 

GOING IT ALONE

• For CDC, India is the single-largest market in terms of investments
   
• $800 million invested by CDC in India — 21% of its total assets of $4 billion
   
• CDC invested in Ascent Capital, Avigo, Baring Private Equity, ICICI Venture, IDFC Private Equity and Venturest
   
• $600 million deployed by Partners Group in India
   
• $100 million committed by CPPIB to Multiples Asset Advisors, a fund owned by Renuka Ramnath

 

CDC has appointed Srinivasan Nagarajan, a director at Actis, as the regional director and Rohit Anand from IDFC Private Equity as an investment executive to manage their Indian investments.

While CPPIB, and Partners Group spokespersons did not respond to email queries, a CDC spokesperson said: “In India, we recognise that the business community and the infrastructure sector require capital in different forms and so we are now providing capital through direct debt and equity.”

“In Phase-I (co-investing), we will look at deals in the $10-50 million range. In Phase-II, we will target $50-200 million deals. We hope to invest around $1 billion in India across all our investments — private equity fund investing and direct investments. We anticipate that the eventual split will be roughly 50-50 between the two,” she added.

Private equity funds in India charge a two per cent fee and 20 per cent carry (carried interest or return) on funds they raise from investors. These fund managers (GPs, or general partners) have been facing the wrath of global investors, as a majority of them have seen ‘zero return’ on investments made in India since 2003.

A recent Bain & Company research report said 71 per cent of the capital deployed on the largest deals in India during 2003-2007 had yet to be returned to LPs.

Charles Daugherty, managing partner, Stanwich Advisors, which advises private equity firms to raise funds overseas, said: “The lack of exits by fund managers in India has encouraged certain limited partners to take a more active role in their investments and look for returns outside of traditional fund investments. LPs seek to make direct investments in order to lower the costs associated with fund investments, as they often don’t have to pay any incremental management fee to the fund, and to benefit from high returns.”

Echoing Daugherty, Ernst & Young’s Mayank Rastogi said:

“Co-investments help LPs look at attractive opportunities, which they may not otherwise have been able to tap into with an added benefit of saving management fee.”

India has witnessed $50 billion worth of PE investments in the past 10 years.

In April, Anubha Shrivastava, former managing director (Asia), CDC Group, had said there was a strong negative sentiment towards India. “During the period of 2004 to 2009, India delivered zero returns, while China gave a net return of 20 per cent on our investments,” she said.