Indian private equity: Driving growth without returns

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Private equity (PE) may not have generated good returns in India, but it has contributed in other ways. Companies backed by private equity grew employment, revenues, and exports faster and had better corporate governance than non-PE backed companies, said McKinsey & Company in a report Indian Private Equity: Route to Resurgence released on Wednesday. Here are the key takeaways from the report.

Impact on India's economy

* The PE industry has contributed substantially to India's growth, investing $103 billion in more than 3,100 companies between 2001 and 2014

* 80% of the firms participated in their first cross-border merger and acquisition (M&A) only after receiving first private equity funding

Performance of PEs in India

* PE firms, on an average, realised gross returns of 21% up to 2007; since then returns have dropped to 7% after the economic crisis

* Only 32 per cent of the capital invested in India between 2000 and 2008 has exited, leaving $75 billion still under investment

The road ahead

* PEs are focusing on high-quality entrepreneurs, seeking greater control and more rigour in valuation and risk assessment

* Limited partners, investors in PE firms, are choosing firms more carefully, looking for deep local expertise and team stability