Fewer exit options, difficult market conditions and conservative investors may put paid to their plans: Experts.
Despite difficult macro-economic conditions, India-focused private equity funds have hit the road to raise funds from investors or limited partners (LPs). Currently, 132 international India-focused funds are seeking to raise $47.5 billion (Rs 2.3 lakh crore) says data from Preqin, a UK-based independent research firm providing data on private equities, hedge funds and other alternative investment vehicles.
These also include emerging market funds that invest a part of their capital in the Indian market. Investments by PE funds include buyouts, venture capital, mezzanine, distressed private equity, real estate and infrastructure. Also, 60 India-based private equity funds are targeting to raise $13.3 billion (around Rs 65,569 crore). Some of the Indian players in the market are Motilal Oswal and SREI.
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To put the numbers in perspective, in the last nine months, $8.5 billion has been invested through 317 transactions, says Venture Intelligence. But the target set by India-focused funds could be “a bit too ambitious”, many experts feel. “There might be 60 funds out there to raise funds, but only a handful will be successful,” notes Vikram Utamsingh, executive director and head (Private Equity Group), KPMG.
According to him, the entire PE industry in India was last year able to raise a modest $2.5 billion. “This year, too,” adds Utamsingh, “they may be able to raise between $2.5 and $5 billion. Besides, there is enough capital – to the tune of $20 billion – already there that is yet to be deployed.”
The main reason is the market uncertainty. Also, the absence of successful exits may make many LPs wary. To top it all, returns in many sectors such as infrastructure and real estate have suffered in the recent past.
AlphaInsight managing partner Alok Gupta, who is in the midst of setting up a team for his debut fund after quitting Axis Private Equity, says the India story is getting sour in comparison to that of China, where returns have been better at 25- 30 per cent in some sectors.
As far as exits go, only 20 took place in the last quarter. “In India, exit option are few,” Gupta notes. “So, many of the investors have not yet seen the desired returns. Also, the GPs, who have returned capital to LPs, are at a premium.” Whereas 2010 was a good year as $5.5 billion was returned to investors, in 2011, PE players have been forced to be hold on to their portfolios.
PE players, as a result, have had to take other routes to raise capital. Fund-of-funds is one option that has been explored by many. Everstone Capital Management, for instance, raised 30-35 per cent of the $350 million through this route. “Raising this fund was not easy,” admitted managing partner Sameer Sain. “I was on road for almost 180 days, and had thousands of meetings,” he told a recent international PE conference.
Even newer regions are being explored. Traditionally, the US and Europe have been the bigger source of funds. Now, PE players are looking more aggressively at West Asia. Evolvence Capital, a fund of funds, is all set to hit the market to raise a $400 million fund, largely from there. Motilal Oswal PE have taken the same route.
The Preqin 2011 report of private equity says India is ranked second in terms of countries or regions in the Asia-Pacific area that offer the best opportunities, with 61 per cent of participants highlighting the country —beaten only by Greater China.
