PEs bank on domestic money

Domestic private equity funds seem to be banking on Indian limited partners more in fund-raising. Weighed down by the state of affairs in the international markets, a couple of private equity funds have already raised funds from the domestic markets, and experts say the trend is likely to continue for some time at least.

Sample this: Religare Milestone Private Equity Fund is raising a Rs 600 crore healthcare and education fund from domestic investors. Aditya Birla Private Equity is planning to raise $250 million from Indian investors and TVS Capital raised Rs 500 crore for its TVS Shriram Growth Fund from domestic institutions and high net worth individuals.

Earlier, it used to be US and UK based limited partners who dominated investments in private equity funds. Endowments and pensions provided a large and stable pool of capital when markets were robust and quality was not a major issue. However, with the tide turning, PEs are scrambling for money and Indian private equity funds are looking inward to raise as much as they can.
 

REASONS FOR THE TREND

* Most of these funds do not have a track record, so raising money internationally is a challenge without a prior experience

* Home-grown private equity funds enjoy a good brand name in India, so it becomes easier for them to raise money here

* Indian high networth individuals have become active in the PE space, especially because it is safer than other asset classes

While this is not a new phenomenon, it is for the first time that PEs are relying purely on domestic money. Experts say that there are reasons behind it. Firstly, most of these funds do not have a track record, so raising money internationally is a challenge without a prior experience. Secondly, these home-grown private equity funds enjoy a good brand name in India, so it becomes easier for them to raise it here.

Indian HNIs have also become very active in the private equity space. They have lots of liquidity currently as they are wary of deploying money in the secondary market. Private equity as an asset class is something where they can achieve decent returns. Besides, it’s safer than other asset classes.

“Private banks and wealth managers have played a key role in popularising PE as an asset class in India. The demand will grow in times to come”, said Arun Natarajan, CEO, Venture Intelligence.

A lot of private equity funds have reduced the ticket size of investments in their funds, allowing greater particpation from HNIs. Religare Milestone’s PE fund has pegged the minimum ticket size at Rs 10 lakh, which is not too high a sum for HNIsl.

“We have raised funds from the domestic market earlier also and the response had been good. Moreover, international markets are in a bad phase. We first want to raise in India and then build up on our track record to go for global investors. The US still remains a major source of capital for private equity funds. It is a much deeper market”, said Rajesh Singhal, Managing Partner, Religare Milestone Private Equity Fund.

“The other advantage domestic money has is that one can invest in sectors without worrying about foreign direct investment issues and external commercial borrowing caps”, added an investment banker.

In the past too, ICICI Ventures, IDFC Private Equity and Kotak Private Equity fund have raised part of their corpus from domestic investors.