Indian private equity (PE) funds are queuing up in the West Asian countries to raise money as slowdown hits America and Europe and limited partners (LPs) demand higher returns and clarity on exits.
Five PE fund managers FE spoke to said they have tapped investors from West Asian countries who have included India on their global investment portfolio list. ?Among the reasons why West Asian investors are evaluating India as an investment destination is the lack of confidence and deteriorating trust on markets like the US and Europe,? says Subbu Subramaniam, at MCap Fund Advisors. He is now shuttling between India, Bahrain, Kuwait and Dubai to get commitments for his $250-million new fund.
?West Asia institutions have a lot of liquidity with them,? says Ajit Kumar, managing director, Evolvence India Fund. ?It is no more easy to pitch for India-focused funds globally as due diligence has become tougher.? Dubai-based Evolvence India Fund will start work on raising $400 million now. The firm, which planned to raise the fund in June last year, deferred its plan after the slowdown in Dubai and the political turmoil in Tunisia and Egypt. The company has held talks with many family offices and pension funds in Middle East. Many Middle East sovereign funds, flush with profits from crude sales, are hunting for target companies across the globe to invest.
?While institutional investors have always shown interest in India, it is the retail investors like family offices that have increased focus here now,? says a former managing director of foreign private equity fund. He cannot be quoted as his fund-raising is in the works and US Securities and Exchange Commission doesn’t allow him to advertise during the process. ?The economy in the West Asia is facing a lot of issues; retail investors who initially parked in money with Dubai real estate have burnt their fingers due to falling property prices. This has made the Indian market a favourable destination for investments for these investors,? he added.
?The fund-raising in Middle East and North Africa (MENA) region had become anemic with insufficient new capital flowing into the industry, says ?The Next Five Years MENA PE? study by consulting firm Pricewaterhouse Coopers released in September. At least 47% of the PE firms in MENA would prefer investing in India, which ranks second after Turkey’s lion’s share of 89%, the survey done to prepare the study said. ?Many MENA-based PE firms would prefer investing in Indian firms that plan to expand in Middle East.?
According to the International Monetary Fund April 2011 data, India’s real GDP or the total goods and services produced in the country, will grow at 8.1% until 2015, while MENA’s GDP will grow by 5.2%. ?West Asia has always been our favoured destination for fund-raising and, in fact, we have a full-time office in Dubai, ? says Deepak Shahdadpuri, founder and managing director, BCP Advisors.
Beacon India Private Equity Fund is now raising $250 million. The company’s first $200 million fund raised in 2007 had 30% limited partners from the Middle Eastern region. ?Since oil prices are high, it makes sense for PE and VC firms to approach sovereign funds in this region as they have a lot of cash at the moment, ?says Sasha Mirchandani , managing partner at an early-stage fund KAE Capital. The fund has already received interest from one or two individuals/family offices from this region for its $25-million target. But, there are challenges. Many PE funds backed by West Asian LPs have to be Shariah law compliant which means they cannot invest in tobacco, alcohol, gaming, pornography, arms and weaponry.