PE firms see returns rise in ’13, hurdles to fund-raising

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SummaryPrivate equity firms in India believe prospects will improve in 2013 as the public market slowly opens up and secondary deals rise, although fund-raising will remain a challenge for many.

of ChrysCapital.

“Exits in mid-cap companies can take a while as some of these tend not to be very liquid,” said Devinjit Singh, managing director at Carlyle India Advisors. “Limited partners or investors need to see successful returns from India,” Singh added.

“There will be pressure on exits as 2006 investments will have now reached seven years. Given that the life of a typical fund is eight to nine years, these investments will have to be exited in some way, perhaps even at a loss,” said Utamsingh of KPMG.

Though the economic environment is improving, investors are still wary of the way ahead. “Policy changes are required in the infrastructure sector for attracting capital, a key imperative for growth. What the government does in the next six months will be critical,” said Archana Hingorani, chief executive officer and executive director at IL&FS Investment Managers.

Another interesting (and growing) trend in 2013 will be secondary deals and limited partner (LP) to LP change of hands. “In funds which are under water on investments, the LPs on those funds will look to exit the funds by selling to other LPs at a discount. These deals will take place outside India and so will not really be tracked in the Indian market. But if they happen, then the new LPs will provide a lease of life to the funds to continue holding on its investments and try in some manner to generate better returns,” Utamsingh said. “In 2012 so far, 25 out of 94 exits were through secondaries, ie, PE to PE transactions. We can expect this trend to continue as there is a very large pool of good portfolio companies and the larger PE funds are targeting these companies for transactions.”

PE firms find the Indian consumer growth story intact. “Domestic consumption sectors like healthcare, pharmaceuticals and financial services and export-oriented, IT-related services will remain attractive,” said Kohli of ChrysCapital.

“Consumer-oriented sectors will be well accepted by the market,” said Girish Nadkarni, partner at IDFC Private Equity.

“Carlyle is always evaluating opportunities to deploy more capital in India. Sectors like financial services, consumer, healthcare and information technology are attractive,” Singh of Carlyle said.

“The sectors of interest will continue to be domestic-driven like consumer, financial services, food and agriculture, pharmaceuticals, healthcare and logistics,” said Utamsingh.

Venture capital firms believe that they will be well positioned for 2013 than the larger funds. “As there are many start-ups being formed, I see more

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